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Learn from Failure
Posted on
Monday 23 January 2012
T.C. Transitus Communications Inc. Case Study
Introduction
Unfortunately it is often true you can learn more from failure than
you can from success. This was true of the Starflyer and it was true of
Transitus as well.
Just as the Starflyer was a can’t-miss idea of mine from the 1980s,
Transitus was a can’t-miss idea of mine, this time in the early 1990s.
It was based on the story of how Vancouver-based billionaire Jim
Pattison revolutionized the bus board industry.
Traveling as much as he did, he had noticed how bus advertising was
popping up all over the place and how effective it could be. His
thought? What if a national company bought up the rights to bus sides
and bus interiors and standardized the industry? Would that work?
He felt that major advertisers would flock to the new media because:
a. it would be inexpensive (about $4.50 per thousand pair of eyeballs
as opposed to say major magazine advertising back in the day at around
$15 per thousand);
b. it would be possible to launch a national campaign with one phone
call and one fax (remember these were the days before the Internet);
c. it was non zappable (TV remotes were proliferating and more folks were zapping TV ads than ever before).
Pattison Sign Group went on to become one of the largest in North America.
My thinking was—what if we brought the same level of standardization
and branding to the taxi-top sign industry which was nascent in those
days.
I felt that signs on top of taxis would have some natural advantages over bus boards or ordinary billboards, namely:
1. Taxis travel on non-fixed routes and, typically, 24 hours per day, seven days per week.
2. Busses tend to operate Monday to Friday and during peak times
only—the remainder of the day they tend to park (unseen) in city depots
far from the pulse of city life.
3. Taxis, even when parked at taxi stands and ranks, tend to be where the action is and where they can be seen.
4. Transitus’ MediaDome would be lighted so its visibility actually
increases still further after dark—bus signs are essentially invisible
after nightfall.
5. The MediaDome and advertisers’ messages would be seen up close by
passing vehicles, trailing vehicles and pedestrians unlike billboards
which can be far removed.
6. Self-adhesive, full-color vinyl ads would be UV protected and not
fade giving the advertiser fully consistent results throughout the
campaign.
7. Creative would also not be affected by car washes meaning that the
advertising partners’ products would look good all the time.
8. Since creative is inexpensive to reproduce and install, the
advertiser could change their campaign often and keep the message fresh.
9. MediaDome advertising would give much greater value per thousand
viewers in absolute dollar terms than any other media and it would
deliver qualitative advantages such as—client messages can not be zapped
by a television remote control.
10. The MediaDome product would be a new elegant, innovative, patented
design delivering a powerful message that will get noticed.
11. National and local advertisers will now have a new channel to reach a
narrow or wide, upscale audience—taxis tend to travel in all parts of a
metropolitan area but they also tend to concentrate more in areas that
deliver superior demographics such as office parks, airports, hotels,
downtown…
12. Each viewing of the MediaDome can last a long time—there is a
captive audience on clogged city streets and congested freeways.
So this seemed an impressive list of benefits—enough to start a business with.
The Product
Next we designed and patented a product that seemed like it was a big improvement on existing taxi-top signs.
Existing signs either looked pokey like this:
Or they were 2-sided and non-aerodynamic like this:
So we came up with a 9-sided alternative that looked like this:
Yes, it has nine sides:
a. front,
b. back,
c. passenger side,
d. driver side,
e. top (we even carried ads on the tops of these units where people in
passing buses or people in tall buildings looking out could see them),
f. four triangular corners we called logo lites because they were eminently suited to showcasing corporate logos.
MediaDome Using Straps (Later Replaced by Internal Cradle and Stainless Steel Fasteners)
Our units called MediaDomes were also much more aerodynamic, in part
because they had a lower profile and in part because they were designed
that way. How did we know? We tested them in the NRC Wind Tunnel at
Ottawa International Airport, viz:
These units were molded out of tough polycarbonate shells.
Polycarbonate is not only strong but also translucent and very white so
along with internal lamps that produced white light, decal colours were
glorious and true. We used aircraft-standard (stainless steel) hardware
to attach the unit to each vehicle (tested to wind speeds of more than
100 mph—you can’t have these units flying off on the highway at 60 mph).
Wiring met all fire code provisions for the auto industry and each
driver was provided with an on-off switch. Cab ID signs could also be
attached on top of each MediaDome and independently switched. We
obtained design patents for these units in Canada and the US. Design
patents are a little easier and cheaper to get than utility patents and
still provide reasonable IP protection.
Transitus MediaDome MDF Mould
Here is the patent we received:
Transitus Patent ( 1 of 1 )
________________________________________
United States Patent D386,209
Firestone , et al. November 11, 1997
________________________________________
Vehicle sign carrier
________________________________________
Claims
________________________________________
The ornamental design for a vehicle sign carrier, as shown and described.
________________________________________
Inventors: Firestone; Bruce Murray (Dunrobin, CA), Brazeau; Scott Andre (Munster, CA)
Assignee: T.C. Transitus Communications Inc. (Dunrobin, CA)
Appl. No.: D/058,566
Filed: August 19, 1996
________________________________________
Foreign Application Priority Data
________________________________________
Feb 20, 1996 [CA] 1996/0385
Current U.S. Class: D20/10
Current International Class: 2003
Field of Search: D10/10,12,19,42 40/592,591,617,584,606
________________________________________
References Cited [Referenced By]
________________________________________
U.S. Patent Documents
D277298
January 1985 Nelson
3975850
August 1976 Giaume
4688343
August 1987 Allan
Primary Examiner: Lucas; Susan J.
Assistant Examiner: Regester; Jennifer A.
Value Proposition
So far so good. Now how about delivering superior value to our
customers. In fact, who are our customers? Advertisers, taxi companies,
cabbies? In fact all three.
Our deal was to offer cab companies a base rental each month for each
cab in the fleet of signs. If we charge say a total of $300 per month
for all nine sides, we proposed to give the cab company $80 per month,
i.e., more than 25% of potential revenues was set aside for the cab
companies and we wanted them to share half of that with license owners.
We could not force them to do that but we strongly suggested it. Can
drivers work incredibly hard and even an extra 40 bucks can make a
difference. We also had data that suggested MediaDomes actually lowered
fuel consumption—their aerodynamics were that good. Certainly, if you
replaced any other taxi top sign with ours there would be a reduction in
fuel use.
What we found when we did the calculations on value delivered by MediaDomes to advertisers was astounding. Here are the numbers:
Table 1: Cost Comparison of Advertising Media/Cost per Thousand Viewers (US$)
Metropolitan
Population
Billboards1 National2
Newspaper National3
Magazine Ad4 Mail Bus
Boards5 Transitus
MediaDome
1,000,000 $13.71
$15.00
$14.00
$120.00 Back:
$3.00
Side:
$4.50 $0.38
3,000,000 $18.27 $0.24
9,000,000 $20.56 $0.12
18,000,000 $23.20 $0.07
Average $18.94 $15.00 $14.00 $120.00 $3.75 $0.21
Notes:
1. Estimated as follows:
Population Cost per month per side Vehicles per day Persons per vehicle
1,000,000 $3,500 7,000 1.2
3,000,000 $12,000 18,000 1.2
9,000,000 $18,000 24,000 1.2
18,000,000 $22,000 26,000 1.2
2. $18,000 per page, 800,000 readers with pass along readership of 1.5.
3. $70,000 per page, 2.5 million readers, pass along readership of 2.0.
4. 12 cents per piece
5. The Bus Board CPMs have been calculated using the Gamma-Poisson
method which is a different method from what was used for the other
media.
They are based on peak-hour traffic only since 85% of transit buses
are not on the road in off-peak hours. In practice, there would be a
small percentage of additional viewers in off-peak hours which would
reduce this calculated rate, but without sign lighting, day-time only
operation should be included. $150 per pair of sides per month ÷ 30.4
days/month ÷ (14,000 vehicles per day X 1.2 persons/vehicle) ÷ 1,000, or
29.3¢ per thousand viewers for the MediaDome.
It costs approximately 12¢ to 15¢ to send one piece of junk mail
through the post office (either CPC or USPS). So to reach a thousand
viewers, it would cost $120 to $150 and that assumes that each
householder actually looks at his or her junk mail.
Billboards are around $19 while major newspapers and magazines are around $14 or $15 and bus boards somewhere around $4.
MediaDomes were delivering views for pennies! Maybe less than 25 cents per 1,000 pairs of eyeballs. It was ridiculous.
Gross Rating Points for Moving Billboards for the Taxi Industry/Measurement
To learn how we got these numbers, you have to understand Gross
Rating Points (GRP). GRPs for moving billboards on top of licensed taxi
cabs can be measured as a function of a number of variables as shown in
Table 2 below. For Transitus’ innovative nine-sided sign, the MediaDome,
GRP can be measured with a certain degree of accuracy for each pair of
signs as follows, that is: Passenger and driver side panels; front and
back panels; and each pair of diagonally place logo lites, as well as
the top panel.
Table 2: GRP Variables
Passenger and Driver
Side Panels Front
and Rear
Panels Per Pair
of Logo
Lites Top
Sign
Panel
Average taxi speed y y y n
Percentage time stationary y y y n
Number of lanes oncoming traffic y y y n
Number of lanes same direction y y y n
Load factor* y y y n
Average number of persons/vehicle y y y n
Number of passengers in taxi/day y y y n
Hours of taxi operation/day y y y n
Days/week of taxi operation y y y n
Number of pedestrians passed y y y n
Number of multi-story buildings n n n y
Average number of persons/vehicle n n n y
Number of busses, streetcars, elevated trams & trains, truck traffic y y y y
Seasonality y y y y
* Measure of peak hour traffic and traffic distribution
It is also necessary to reduce this set of variables to a single,
easily understood function that closely approximates the behavior of the
GRP. In essence, we attempt to measure GRP for each pair of sign panels
as a function of the metropolitan population of an area.
GRP per pair of signs per cab per day is fundamental to delivering
value to advertising partners. GRP will be higher in larger metropolitan
areas where more pedestrians and vehicular traffic and multi-story
buildings mean more pairs of eyeballs on advertisers’ messages.
Suggested pricing delivers exceptional value in each of
market–delivering more value per thousand viewers than any other medium
and with greater impact.
Base Case
For a metro population of 4,000,000, for a taxi travelling on a
two-lane road, GRP per pair of signs can be expressed as follows:
GRP/pair of signs/cab/day = 24 hours/day X lane capacity X average number of persons/vehicle X number of lanes X load factor,
or
GRP = 24 hrs X 1,200 vehicles/hr/lane X 1.2 persons/vehicle X 2 lanes X 0.333 load factor
which yields:
GRP = 23,017 persons per day.
For a smaller metro market of 1,000,000 population:
GRP = 23,017 persons/day X avg. hours/day of taxi operation X number of days per week of taxi operation,
or
GRP = 23,017 persons/day X 16/24 hrs/day X 6/7 days per week,
or
GRP = 13,153 persons per day.
This calculation for a city of one million does not include an
allowance for pedestrians, multi-lane highways and streets and
viewership from multi-story buildings. Thus, we believe that MediaDomes
can and do deliver a higher GRP figure than those shown.
For a large metro area with a population of nine million, we have:
GRP = 24 hrs./day X 1,200 vehicles/lane/day X 1.2 persons/vehicle X 3
lanes X 0.400load factor X 24/24 hrs per day X 7/7 days per week,
or
GRP = 41,472 persons per day.
Now we develop an equation for GRP as follows:
GRP = a + mP,
where:
a is a constant,
m is the slope, and
P is metro population measured in millions.
From the above data we obtain:
GRP = 9,613 + 3,540P, 0.5M < P < 18M
This measurement of GRP, in viewers per pair of signs per cab per
day, is valid for metro areas with a population of from 500,000 to
18,000,000 persons. Above that figure, GRP is likely to level off as
congestion increases and limits to both vehicular and pedestrian traffic
densities are reached. Application of this equation provides the GRP
estimates presented in Table 2.
Table 3: GRP* per Pair of Signs per Cab per Day as a Function of Metro Population
Population Gross Rating Points (GRP)
500,000 11,383
1,000,000 13,153
2,000,000 16,693
3,000,000 20,233
5,000,000 27,313
9,000,000 41,472
12,000,000 52,093
15,000,000 62,713
18,000,000 73,333
30,000,000 73,333
*GRP: Number of persons viewing each pair of MediaDome message panels per cab per day.
Value
MediaDomes provide exceptional value per 1,000 hits (viewers) as shown below in Table 4.
Table 4: Cost Per Thousand Viewers (CPM)
Population Price* Per
Two Side Panels
GRP Cost Per Thousand Viewers (CPM)
1,000,000 $4.94 13,153 $0.376
3,000,000 $4.94 20,233 $0.244
9,000,000 $4.94 41,472 $0.119
18,000,000 $4.94 73,333 $0.067
Numerical average: $0.201
*US$ per cab per pair of side panels per day (suggested pricing of $150 monthly per pair ÷ 30.4 days/average month)
MediaDomes deliver exceptionally low cost per thousand viewers with a
qualitative advantage based on superior graphics, superior demographics
and greater and more sustained viewership. Compare the cost per
thousand delivered by MediaDomes with major media as shown in Table 4.
The MediaDome cost advantage is substantial and makes investment in the
product doubly worthwhile. In fact, combining lower costs and
qualitative advantages (see below) with the low cost of producing the
creative ads when compared with the cost of producing, for example,
billboard signs, television commercials or bus ads, the MediaDome really
stands out from the crowd.
Reasonableness Test
In a metropolitan area of one million persons, a typical two-sided
stationary billboard will rent for from $3,000 to $3,500 monthly and up,
or about $100 to $115 per side per day for a two way traffic count of
from 12,000 to 14,000 vehicles per day.
Each side is seen by half the traffic which means that we obtain a cost per thousand viewers as follows:
$3,500 per side per month ÷ 30.4 days/month ÷ (7,000 vehicles per day
viewing each side X 1.2 persons per vehicle) ÷ 1,000 (for cost per
thousand),
or
$13.71 per thousand for a billboard sign.
If a cab is parked next to this billboard, each pair of sides would be seen by 14,000 vehicles per day.
Thus, for two side panels at $150 monthly, we would obtain a cost per thousand as shown in Table 1 above.
Pre-Selling
Readers will know how important pre-selling is to entrepreneurial
startups. Transitus had a wonderful launch client—Corel Corporation led
by charismatic Mike Cowpland who on seeing a Media Dome in his meeting
room instantly understood how powerful it would be to have the next
launch of Corel Draw featured on Media Domes everywhere. He bought the
entire fleet. We were sold out for our first three months!
We would do total paints of all our MediaDomes with Corel.
This emboldened us to do deals with cab companies in New York, Toronto, Ottawa, Los Angeles, San Diego, Denver and Mexico City.
Next stop? The WORLD!
Here is a copy of one of our old sales flyers:
Financing
Apart from getting a BIG deposit on the order from Corel, we raised
about $950,000 from ourselves, our friends/family/fools. Everyone fell
in love with the product and the concept—move over Jimmy Pattison!
Anyone who was interested would get a copy of an informal prospectus that looked like this:
________________________________________
Prepared for: Nu-Tek and Transitus
Prepared by: HCC
February 1, 1997
Executive Summary/Purpose of this Plan
Nu-Tek Signs Inc. (Nu-Tek) was started by Scott A. Brazeau and
Francis Brazeau as Ar-Tek in 1989. It was officially renamed Nu-Tek
Signs Inc. and incorporated as such in 1995. Nu-Tek is experiencing
rapid growth based on providing superior quality signs and excellent
customer service at competitive prices. T.C. Transitus Communications
Inc. (Transitus) was incorporated in 1996 to develop and market a
proprietary taxi-top mobile sign product and other innovative
advertising products and media, as well as to handle more conventional
stationary billboards. In 1996, the owners of Nu-Tek and Transitus
formed an alliance and exchanged share ownership with the purpose of
launching and building the mobile signage business for the benefit of
both companies.
Appendix B details the existing ownership and share structure of Nu-Tek and Transitus.
This Business Plan outlines the background, status and plans of both
companies with a focus on the development of the mobile signage
business. This business is projected to generate annual revenues in the
order of US$100M within five years of funding for these two companies.
To implement this Business Plan, US$2.4M (Cdn$3.2M) of capital will be
required. The purpose of this Plan is to provide the information
necessary to potential investors to assess the opportunity presented and
to make a decision to invest.
Signage Services and Mobile Signage
Nu-Tek designs, manufactures and installs all types of signage,
including illuminated signs, in brass, aluminum, plastic or other
materials for commercial purposes. Nu-Tek is best known for its showcase
signage at the new $200M Palladium (now the Corel Centre) in Ottawa and
is currently negotiating the design of new signage for the National
Arts Centre in Ottawa, Canada, and other prestige facilities.
Transitus has designed, developed, tested and protected an innovative
taxi-top advertising display unit that will revolutionalize the mobile
advertising market. The mobile billboard market currently focuses on
transit buses. In contrast, the Transitus taxi-top unit provides greater
advertising value per dollar and greater reach, on a high-quality,
back-lit shell. Taxi drivers, owners and brokers enjoy steady revenues
with this product.
The Transitus product was unveiled at the International Taxi &
Livery Association Annual Meeting and Convention in Anaheim, California
in October 1996 and it received overwhelming response. Service is
scheduled for inauguration in Denver in February with service in New
York and Toronto to follow soon after. Service has been enthusiastically
received by both advertisers and the taxi industry.
The agreement between Transitus and Nu-Tek provides for Transitus to
build, deliver and maintain the taxi-top units while Nu-Tek manufactures
the images and installs the advertising copy on the units to client
specifications.
The taxi-top sign business is, in many ways, reminiscent of the bus
billboard business a generation ago. At that time, there were few bus or
transit authorities who benefited from advertising revenues. The
‘industry’, such as it was, was fragmented. Advertisers could not
measure accurately the CPM (cents per thousand viewers) and could not
place large-scale, North American-wide orders. Today, of course, bus ads
are a part of main-stream media. Analysis shows that CPM for Transitus
is in the range US 9 to 40¢. Given the design of the Transitus product
(see Appendix A) and the nature of the taxi business as compared to
buses, Transitus’ cost-effectiveness is several orders of magnitude
better. When compared to buses, the Transitus’ product enjoys the
advantages of non-fixed route exposure in metropolitan areas of higher
average income population. Other media (national newspapers and
magazines) are in a different cost regime of about $10 to $20 per
thousand–about 100 times that of Transitus. Additionally, Transitus’
taxi-top sign product is internally lit and, therefore, advertisers also
benefit from after-dark hours of operation of taxis.
A few years from now, taxi-top signs will achieve wide acceptance and Transitus and Nu-Tek are poised to ride this wave.
Owner and Management Team
Mr. Scott A. Brazeau and Dr. Bruce M. Firestone, are the majority
owners of Transitus and Nu-Tek. Mr. Brazeau is President of both Nu-Tek
and Transitus, while Dr. Firestone is Chairman and Founder of Transitus.
Mr. Brazeau is an experienced entrepreneur, having started and
developed Nu-Tek to its current successful and rapidly growing
operation. The Ottawa-Carleton Board of Trade recently named Mr. Brazeau
the Bronze Young Entrepreneur of the Year as part of the 1996 Business
Achievement Awards. Dr. Firestone is well-known for his entrepreneurship
and innovative business sense, and as the Founder of the Ottawa
Senators Hockey Team and inspiration behind the Palladium (now the Corel
Centre). His involvement with NHL hockey has given him insights with
respect to the top metropolitan centres in North America–the target
market for Transitus. His experience in real estate development provides
an understanding of municipal government and regulation which are key
to securing necessary approvals for taxi advertising.
Nu-Tek, under Mr. Brazeau’s leadership, has a young but knowledgeable
management team of three senior managers who, together with Mr.
Brazeau, capably operate the manufacturing businesses. To date, this
team has run Transitus as well as Nu-Tek. The team will be augmented by
two experienced managers specifically for the Transitus operation
shortly after funding is in place.
Financial History and Projections
Nu-Tek achieved net income (before taxes) of Cdn$126K on revenues of
Cdn$1.16M in fiscal year ending April 30, 1996, a factor of three higher
in revenue over the previous year. Projections for FY97 are for income
of over Cdn$150K on revenues of Cdn$1.6M. These years of success follow
five years of development of the business by Mr. Brazeau under the
Ar-Tek name. Excluding the growth in business for Nu-Tek projected to
come from the alliance with Transitus, Nu-Tek will increase its revenues
by approximately 40% annually for the next three years while enhancing
profitability.
Transitus began operation as a company in October 1996 after two
years of owner development and contributions. Transitus’ first full year
of operation, after funding is in place, is projected to show a loss of
US$945K on revenues of US$1,415K. Net income is projected to turn
positive between the fifth and sixth quarters making the second year of
operation show a profit of US$450K. Third and subsequent years will be
considerably profitable such that cumulative net income becomes positive
in the tenth quarter (from funding). The fifth year projections show
net income before tax of some US$22M on revenues of US$76M with an
annualized 20th quarter revenue of US$105M.
The Transitus operation is projected to bring additional revenues to
Nu-Tek of about 30% of the Transitus advertising revenue. This
additional revenue will increase Nu-Tek’s second fiscal year revenue
after funding by Cdn$1.5M. In later years, the impact on Nu-Tek is
substantial–projected to be Cdn$4.5M, $13M and $25M.
Financing Requirements
Financial projections detailed in the Business Plan show that
Transitus will need working capital of US$1.8M (Cdn$2.4M) to meet cash
flow requirements through its development period. Nu-Tek’s growth, based
on its own fast-growing market plus Transitus’ business, will require
an additional Cdn$800K.
It is proposed that 75% (Cdn$2.4M) of this total cash requirement
(Cdn$3.2M) will be financed as equity and 25% as debt as a combination
of a bankline secured by receivables, mortgage of real property and a
three-year term loan.
The equity financing will be paid out in the fourth or fifth year at
market value through company redemption of shares, a buy-out of shares
by a third party, or through proceeds from a public offering.
Assessment of Risk
The principals in this venture have identified the risks involved and
have plans to minimize the negative impacts where possible. These risks
have been identified as:
• Rapid growth can lead to financial risk;
• The interests of and relationships among taxi companies, unions,
drivers, licensing and regulatory authorities can become barriers;
• Competitors will try to emulate the success and innovation of Transitus’ product and service;
• Other advertising media may react strongly if they perceive their market to be jeopardized; and
• Once the concept is proven, an innovator could attempt to develop a high-tech electronic mobile sign.
These risks will be managed and mitigated in the following ways.
Dealing with rapid growth means having systems and processes in place
to take advantage of opportunity. Transitus and Nu-Tek have together
taken the next step by purchasing an expanded plant, engaging financial
consultants and putting in place revenue contracts before committing
product. As well, the detailed market penetration plan is based on an
intentional consolidation period (a pause in growth) of approximately
nine months after the first full year of operation (see the projected
Market Penetration by City graph in Appendix C). If necessary, this
consolidation period will be utilized to refine the manufacturing and
production processes, and the marketing and implementation plan, to
ensure delivery of high-quality service to advertising clients and the
taxi industry.
The barriers to entry are both a positive and negative factor for
Transitus. The political experience of the principals and staff in
dealing with regulatory matters will allow Transitus to meet the
requirements for taxi licensing commissions and authorities. Once
established, Transitus will have a built-in advantage over most
competitors.
Competition in any industry today is inevitable.
Transitus will meet its competition by not only providing a superior
product but also superior service and price. Transitus is the lowest
cost provider of mobile signage in North America which helps secure
Transitus’ position. In addition, Transitus will vigorously enforce its
design patents in Canada and the USA, as it has already begun to do.
Transitus is not only the lowest cost signage supplier in the taxi
industry, but it has the lowest CPM of any major media including bus
billboards, stationary billboards, junk mail, major magazines and
newspapers as well as television and radio advertising.
To date, no manufacturer has produced an electronic board that could
meet the requirements of the taxi industry. If such developments occur,
Transitus may incorporate same into its program at that time.
In summary, Transitus and Nu-Tek, with its leading edge technology,
are well positioned to take advantage of this opportunity and to prevail
against the competition.
So What Went Wrong?
Nearly everything. First, you will notice the absence of a business
model. Some of the elements are there but there is no consistent
bringing together of them in a whole presentation that makes sense.
It’s obvious (in retrospect) that promising cab companies more than
25% of revenues was reckless; in general terms, whether you are renting
space for a new restaurant, a new store or renting the top of a taxi for
a sign, you need to keep your occupancy costs (as a rule of thumb)
below 10%.
This was also a take-or-pay system we set up—even if we had no ads,
we still owed the cab company $80 per month per cab. If you have 500 of
them in your fleet of signs that adds up to $40k per month. Yikes.
But there were other issues too like the fact that after Corel
Corporation, we had no other major national advertisers jump in the boat
with us. We forgot the basic rule of pre-selling: you need a minimum of
three launch clients. Why?
Because you can convince one fool of practically anything, maybe two but probably not three.
It turned out that taxi top signs were frowned upon by major
advertisers and their marketing agencies. This media was traditionally
the home of girly club ads (in Vegas), political advertising and tobacco
companies.
There was no way that Calvin Klein was going to have their clothes next to anything like that.
It was also awkward to replace decals. Cabs are busy and getting them to
come in to replace advertising campaigns was not a simple scheduling
job. The cost of removing them and replacing them was much greater than
anticipated.
Solutions?
What could the group have done differently?
Well obviously looking back they needed a business model. If we had
done that maybe we could have discovered some other relationships such
as:
a. there is the potential for a reseller model;
b. resellers could have been marketing agencies who have a large roster
of existing clients who might have been willing to give a new media a
go;
c. the cab companies themselves could have partnered with
Transitus—every cab company has clients like hotels, convention centres,
office parks, etc. that could have been advertisers;
d. this would have reduced the marketing problem from one-to-many (every
potential sign advertiser in every city they operated in) to
one-to-a-few (just sign up a half dozen marketing agencies in each city
who each of them having perhaps 400 or 500 clients).
The other thing that would certainly have saved them is the advent of
e-paper. If the decals were e-paper instead of plastic, it would be
possible to equip each MediaDome with a communications infrastructure
that would allow ads to change electronically, say every day by
downloading and updating images. Moving picture images (i.e., video)
might also be possible.
What if you went today to Yahoo, Bing or Google and allowed them to
place dynamic ads on tax top signs? That would certainly solve the
customer problem and GIS advertising is huge and growing. No point in
advertising a local TO-consulting business in LA is there? Would Groupon
be interested in offering coupons on this platform? Sure they would.
You could change the coupon by time of day… Close to lunch? How about a
dollar off special at a sub store?
The biz model would evolve to look a bit like this:
But as tempting as these ideas might be there is one thing I have
learned in my career—YOU CAN NEVER GO HOME AGAIN. Once you have failed
at something, don’t go back, don’t try to go back—you’ll probably just
waste another few years of your life.
Another thing they should have done—gone slower. You’ve probably heard the Lewis Carroll quote: ‘The hurrier I go the behinder I get.’ True, unfortunately.
One of the reasons that startups are generally more successful in
major metropolis areas is that they have a larger pool of top notch
entrepreneurs who can learn from each other thereby reinforcing each
other’s success. Another reason is that they can CONQUER THEIR OWN
BACKYARD BEFORE CONQUERING YOURS. Their backyard (if they live in Los
Angeles, San Fran, TO or Boston) is a lot bigger than yours if you live
in Ottawa or Tallahassee. So they get to try out all their cockamamie
ideas on a bigger local market before trying to conquer the world and
that helps—a lot.
…
Prof Bruce
Prof Bruce @ 11:15 am
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Why Business Models Are Important
Posted on
Thursday 19 January 2012
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 40% of his time as CEO on IBM business
models.
Steve Jobs figured this out before he launched the iPhone when he
insisted that AT&T give him a share of its 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,
some of which are recurring: the holy grail of techdom.
Imagine how much harder Steve Jobs and Apple would have had to work
and how much lower their productivity as measured in revenue per
employee would have been without recurring revenues from iPhone app
sales and app revenues, advertising revenues on their mobile platform,
downloads of paid content from iTunes and a share of carriers’
subscriber fees? From a simple question and a tweaking of their business
model flowed great benefits. The harder they work, the more money they
make and, in Apple’s case, this relationship became geometric and Apple
is now the most valuable company on the planet**.
One of the reasons business models are so important is that by fully describing the business ecosystem, you discover
new relationships amongst your suppliers, clients, your suppliers’
suppliers, your clients’ clients and yourself. And what Mr. Palmisano
was getting at is that while your competitors may copy your products or
services it is not only tougher to duplicate your biz model and the
community you build around it, it’s also impossible for them to copy
what you plan to do next based on the process of discovery and
innovation that building these models entails.
Prof Bruce
(* Already having revolutionized personal computers, animation and
music, Jobs added cell phones, tablets and, quite possibly, book and
magazine publishing as well as perhaps newspapers and TV to his list.)
(** It wasn’t the iPhone, per se, that did this. It was its biz model
and resulting ecosystem that did. We estimated that the iPhone
generates an incredible 288% p.a. IRR, Internal Rate of Return, for
Apple, possibly the greatest single tech profit generator ever. For more
on this, please see: Advanced Spreadsheet Use—For the Product Manager, https://www.eqjournal.org/?p=1714.
Lastly, to learn more about the possibilities that come from biz models
designed for the 21st Century, please refer to: The Complete Business
Model, https://www.eqjournal.org/?p=692.)
Prof Bruce @ 7:11 am
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Need Startup Capital? Get Some from your Clients
Posted on
Tuesday 17 January 2012
(This article, written by Journalist Greg Markey, first appeared in Ottawa Business Journal, https://www.obj.ca, Jan. 17, 2012)
When Bridgehead began renovating its new location on Preston Street,
the locally headquartered coffee shop chain turned to the community for
funding. They established a program called ‘plant a bean,’ whereby
customers buy gift cards in amounts varying between $250 and $1,000. The
customer receives the money back in instalments of Bridgehead dollars
every six months over a three-year period. Customers also receive a
20-per-cent bonus on the value of the card, says Bridgehead managing
director Tracey Clark.
“For years we’ve heard from customers, ‘How do we support you?’ … We
felt this was a great way to engage customers and give them that
opportunity,” says Ms. Clark, adding it was an opportunity to generate
buzz around the company’s new Little Italy facility.
Along with a coffee shop, the 15,000-square-foot location will house a roastery and a room for staff training and community use.
The roastery will supply coffee to the company’s 14 shops across the
city when it opens in May, allowing for more frequent shipments and
giving Bridgehead more control over its products, Ms. Clark says.
Although the company was able to secure funding before the
remodelling of the old brick building, Ms. Clark says: “every dollar
helps.”
Bridgehead is not the only local company to borrow money from customers to fund an expansion.
(To read the balance of the article, please go to: https://www.obj.ca/Local/Retail/2012-01-17/article-2866185/Brewing-up-capital/1.)
Note: This is a clever way to self-capitalize and, even though
Bridgehead is not a startup anymore, it shows that you are never to big
to use bootstrap techniques. For more on this, please see: Bootstrap
Capital—The Last Word, https://www.eqjournal.org/?p=1162.
Prof Bruce
Prof Bruce @ 2:37 pm
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25 Steps to Entrepreneurial Success
Posted on
Saturday 14 January 2012
I am often asked: “What are the keys to success?” I have
developed some ideas on this over the years and, like any list in this
area, mine is incomplete. Worse than this, many of these ideas for
success are contradictory. Things that I learned from my Dad, Professor
O. J. Firestone, like “Never take ‘No’ for an answer” tend to contradict
things like “Know when to quit.”
You need great mental flexibility to be a successful entrepreneur or
intrapreneur. When something isn’t working (we call this knowing when
your own a Zombie Company), STOP DOING IT, PLEASE. Otherwise you can
waste a huge amount of energy and a good part of your life.
I remember in the early 1980s, working on a cool project called the
Starflyer. It was a heck of a product—a flying disc with a patented
aerodynamic surface that flew incredibly well. It had a Superstar’s
endorsement by Wayne Gretzky, the greatest hockey player of all time in
my view. It had two teensy (as my daughter Jessica would say) LED lights
and a tiny camera battery underneath. When turned on, the LEDs created
(using the persistence of vision effect) a terrific looking red halo of
light so that the one could play at night. We had a good crew working in
our assembly plant here in Ottawa. We made 10,000s of these great toys.
The Starflyer: Great Product, Prof Bruce
There was only one problem—NO ONE WANTS TO PLAY FRISBEE* AT NIGHT. I
had 10,000s of these things in my barn for a decade and a half before
finally giving them away to charity.
(* ‘Frisbee’ is a Trademark of the Wham-O Corporation.)
The market is always right, even when it is wrong. If you get out in
front of the market or you miss it as we did with the Starflyer—you’re
done.
So, guess what? You need to be able to deal with ambiguity to be a
successful entrepreneur or intrapreneur. You need to use ‘fuzzy’ logic
to sort through all the conflicting advice and signals you are getting
and you never have complete information, so get used to making decisions
on the fly.
1. Cashflow is King
“To me, in order to run a business, you have to be profitable from
day one. I never learned this business of, ‘Hey, here’s $10 million. Go
and hire some people and lose money for three years’,” Omur Sezerman, Oz
Optics.
Build a real business with real cashflow, profits, customers, clients
with discipline and focus. Stick to the business model if it is working.
If it isn’t, change it or dump it.
If you are profitable from Day One, you’ll never get bullied by the Golden Rule (He or She who has the Gold, Rules.)
Your startup cashflow plan should be: a) as accurate as you can make
it, b) conservative (under promise and over deliver), c) once you’ve set
it down, work very hard to deliver. Meet your cashflow goals every
month- don’t expect to do it all in the last month of each quarter or
the last quarter of each fiscal year. If you have cashflow, you will
attract capital, not the other way around. If you’re looking for
financing, demonstrating that your business model makes sense even on a
micro scale helps a lot. Do you have any advance orders, made any sales?
Upon seeing his very first web page, Lou Gerstner, former CEO of IBM asked: “Where’s the ‘buy’ button?”
If you have cashflow, you’ll live to fight another day. Most startups
take twice as long and three times as much money before they get to the
point of take-off. Their revenue versus time curve looks a lot like a
biological growth curve- negligible at first, slow through the early
years, then, at some point, they take-off, practically a geometric
progression for a while. Sales eventually plateau; this should be a
period of consolidation- secure your ‘base camp’ for the next assault on
the ‘peak’.
If you have a solid base, even if your next initiative fails, you’ll always have somewhere to retreat to.
Every startup should have a sales chart on the wall, on the door, on
every desktop and on everybody’s computer which uses simple tools to
prompt folks to be thinking sales, cashflow, clients and customers.
Everywhere people look there should be a large graph of ‘N’, where N =
the total number of clients, customers, deals, dollars, lots, downloads,
whatever simply measures the business at its most fundamental: where
the rubber meets the road- its DNA. Focus on ‘N’; make ‘N’ grow every
day.
N = ?, today.
2. Keep your Overheads Down
No matter how successful you are as an entrepreneur (and that usually
means that you spend most of your time on the revenue or technical side
of your business), your costs always rise to exceed your revenues if
you do not exercise restraint and have proper controls in place. (You
will find the same thing is true on the personal income side even if you
are the CEO of a Fortune 100 company, for example.) Startups that
invest in luxuries like triple A office space, leather couches, great
company cars, will not be around long.
3. ABC: ‘Always Be Closing’
This expression was used in the film, Boiler Room. Ben Affleck’s character uses it. It’s also often written as: ‘Always Be Selling’.
Sales are all about face time (face-to-face time). Emails, telephone
calls, brochures, web sites, faxes, snail mail, yadda, yadda, nothing
outsells interpersonal contact. (If you can’t do a F2F, then choose to
sell by telephone next, then email, then fax, then snail mail then by
third party, in that order of preference and effectiveness.) Remember,
don’t push on a string: get in front of the decision makers, 1 on 1, and
sell, sell, sell.
“Selling is persuasion. Marketing is persuasion. Every business
meeting is based on persuasion…. You can do all of them better if you
understand how the mind works, how people think,” Scott Adams, Creator
of Dilbert, BizEd, November/December 2002, p.19.
Everyone in your organization is in sales. Nothing is worse than
calling a receptionist and asking him or her to direct your call to the
right person or department and they answer: “Huh?” Your front line staff
are just that- they are the point of first contact for many future and
existing clients. Your receptionist is really your CIO (Chief
Information Officer) in a way, even if you don’t think so. Staff
training is essential.
‘You want attenuators, I’ve got attenuators. You want connectors, I’ve got connectors,’ Jozef Straus is reputed to have said at a trade show in the early days of JDS Uniphase.
Your accounting and finance staff are selling too. Where do you find new customers?
Firstly, you can find new clients from your existing client list
(your accounts receivable list). Secondly, you can find them in your
accounts payable list too. This is called reverse selling. If someone is
fixing the plumbing at the Corel Centre, don’t you think they should be
a season ticket holder too?
You can you sell to people who you buy from. Don’t treat your
accounting and finance staff as glorified bookkeepers; they are a
crucial source of leads and cashflow (remember to collect early and pay
late too).
“Selling isn’t about taking advantage of people, it is about
communicating and informing them,” Mark Cuban, Owner, Dallas Mavericks,
November 7, 2002 on The Score.
“Selling is telling,” Mark Gencher, Executive Vice-President, Brymark.com, June 2003.
Sales Tip: You are NEVER too busy to return a sales call.
Recently, a SME business owner I know, was contacted to quote on a
monster account but he was too busy to return the call. Everyone is
busy, I understand that. But we are often busy doing urgent but
unimportant things while important but non-urgent things (like returning
this call) get ignored. Wrong. You should call back potential clients
within a day or two (at the latest) no matter how busy you are, if only
to say that you are too busy to respond properly right now, but can you
get back to them later and then set/schedule a time for that call.
If you can’t sell (your ideas, to clients and customers, to staff and suppliers, to bankers), you can’t be an entrepreneur.
When selling don’t be afraid to name big numbers ( refer to: What
They Don’t Teach You at the Harvard Business School, Mark H. McCormack,
Bantam Books, New York, 1984 plus his follow up book, What They Still
Don’t Teach at the HBS, 1989).
Pricing is a complex subject; learn it:
a. Pricing is an art not a science.
b. Pricing (and taxation) in the words of a famous French bureaucrat and
tax collector is the: “art of picking the maximum number of quills from
the goose with the minimum amount of hissing.”
c. Your prices have no relationship to your costs. In a competitive
marketplace, you can charge whatever you like. It may be above your cost
(often way above, in, say, the marketplace for major league baseball
players), at your cost or even below cost. These are called
loss-leaders; e.g., selling below cost milk to get folks into your
supermarket. Ever notice how the milk is always furthest from the door
in every store– that’s to get you to impulse buy when you are walking
through the facility.
d. The market is always right even when you think it is wrong. (Just
because you have built a better mousetrap doesn’t’ mean much.)
e. Demand has been known to go up if you increase your prices: snob appeal.
f. Prices are what a willing buyer and a willing seller freely agree to in competitive markets.
g. Price is a mechanism for rationing goods and services.
h. A price based economy is the worst way to organize a society except for all the other ways yet discovered.
i. Prices are democratic. Dollars don’t discriminate.
j. Don’t be afraid to name high prices (i.e., as in what IMG’s Mark
McCormick wrote in What They Don’t Teach You at HBS and What They Still
Don’t Teach You at HBS.)
k. Realize that by naming high prices you have excluded the mass market.
l. Freemium models are a new riff on an old model—try before you buy/don’t pay a cent events…
m. Customers naming prices they are willing to accept was such a new
concept that Priceline was able to patent this business method.
n. Social commerce is entering the lexicon as communities get together
(mostly online or in apps) to influence pricing; e.g., getting a
certain number of Likes can induce providers to reduce prices.
o. Breaking prices down into components has been helping car companies,
for example, sell their wares for a long time. The base model is $X but
if you want doors, engine and transmission, it costs more…
p. Two for one or buy two get one free…
q. Rob Hall at Pool.com revolutionized the domain name backorder
business by making it free to backorder—you just pay if they are
successful.
r. The number of variants of the auction and bidding systems is staggering.
There are an infinite number of pricing models and it is an
incredibly important part of your overall biz model so give it a lot of
thought and then experiment if something you try doesn’t work.
If you really want to sell someone something, go to see them. It is a
lot harder to say “No” in person and you can read body language and
other non verbal clues too.
Don’t be afraid to make the first move- lots of deals go sideways
because each side lacks the confidence to be first to name a price; they
don’t build trust- people like to buy from people they like and trust.
Don’t take ‘no’ for an answer.
Don’t overstay your welcome- when the client says ‘Yes’, thank them and get out.
Don’t forget to ask for the sale. ‘Yes’ is better than ‘No’ but ‘No’
is better than ‘Maybe’. Watch out for the ‘Hoop Treatment’ where a
potential client says: “If only your (product or service) could do XYZ,
then I’ buy it.” You go away and fix it and come back six months later;
they’re still not ready to buy- they raise the bar or hoop a little
higher. You’ve become a poodle in training- people don’t like to say
‘No’. They would rather you figured it out yourself. Listen carefully
for a ‘Yes’ or a hidden ‘No’ and act accordingly. Tell then that if they
say ‘Maybe’ you’re just going to assume it’s a ‘No’ and save you both a
lot of time. You’ll be amazed how often that leads to a deal.
Don’t be afraid to ask the client/customer: “What’s your budget?”
Don’t be afraid to put your prices on your web page- people want data
from the net and you don’t want someone who is looking for a Volkswagen
in your Mercedes showroom anyway.
Selling is all about providing information, not selling things to
people they don’t want or need. Everyone in your company is in sales:
the techies, the receptionist, even the accountants and lawyers. Nothing
is worse than calling up a company and asking the receptionist for help
re. your serivces or products and they answer with a “Huh?” That isn’t
their fault: it’s yours for not training your staff.
When companies fail it is almost always management’s fault, not the
union, not the government, not the market, not the competition, not the
employees, not your suppliers, not your clients or customers; it’s your
fault.
Give your sales staff a living base salary; one they can live on and
pay their bills with. Load up the incentives. When you do this, you get
the whole person- their effort and their creativity. When you pay 100%
commission, while you have no fixed overheads, your sales staff have no
commitment to you. Your tunrover rate will be unacceptably high. There
is a lot to be said for stability; it helps you to develop an
‘institutional’ memory.
A major nation wide store chain regularily sacks its experienced
staff to avoid wage creep and reduce its fixed costs. It also reduces
customer service to close to zero. Its competitors like Home Depot and
Walmart who belive in staff training and retention are eating its lunch.
Always pre-sell everything. Remember if it was up to the engineers
and lawyers, no product or service would ever be ready for prime time.
If you pre-sell your product or service, you’ll have a lot more
confidence that you’re on the right track and not about to go over a
1,000 foot cliff.
4. Never Confuse Marketing and Sales
Marketers get to wear nice suits and make $35k per year. Top
salespersons make six figures and almost never get laid off. Marketing
is part of the tail of an organization; sales are part of its teeth.
Market studies are nice to have but can never replace real world
experience. A NHL marketing study once indicated that it was possible to
sell 100,000 season tickets in that marketplace (Ottawa btw) when even
the very elite teams struggle to sell 15,000.
In assessing the market, remember that you are not the market. Your
views, your likes and dislikes are essentially irrelevant. As I said
above, the market is always right, even when it is wrong. People are
often irrational and markets can be as well. Sometimes you get more
demand by raising prices not less (snob appeal, for example).
Probably less than 3% of all people are leaders and less than 1% are
still leaders after age 30 because they get burned and quit. One young
person I know, after two business failures, quit to take a J.O.B. He
wouldn’t take on any more debt (he had $35k in debt at the time) or any
more risk because of his recent failures. But what is Entrepreneurialist
Culture if not risk and reward- a balance of probabilities; careful use
of resources including OPM (Other People’s Money)? This guy was beaten
before he started. He should have learned from his failures and gotten
on the horse again.
“Whether you believe you can, or whether you believe you can’t, you’re absolutely right,” Henry Ford.
5. Goal Setting
“We (the Ottawa Senators) have a 7 to 12 year plan to win the Cup; we
want to make the playoffs within five years and, in our first year,
we’ll get 22 points or better,” Dr. Bruce M. Firestone, Founder Ottawa
Senators, October 1992.
Results were: 24 points in Year One, the team qualified for the
playoffs in Year Five on the last day of the season by beating the
Buffalo Sabres and the world’s best goalie at the time, Dominik Hasek 1 –
nil in a win-and-in or lose-and-go-home situation and achieved 103
points and 95 points in Years Seven and Eight.
The Stanley Cup remains at bay but in 2002/03, the team came within 2
minutes and 14 seconds of the Stanley Cup final in a Third Round 7th
game showdown with the New Jersey Devils, the eventual Cup winners.
Goal setting is an amazing force for change and achievement. It is
almost always better to go somewhat later in a downhill ski race, for
example, after you know what your main competitors have already done.
That way, you can set your split times and race to win.
6. Visualize and Verbalize
If you can also visualize yourself completing your race and achieving
your goals, you will greatly enhance your chances for success.
There is a saying in Japan: “You fall down seven times, you get up eight times.”
If you verbalize your ideas with a trusted confidante, you can sort
through the really bad ideas and get at the good ones much more
reliably. Remember the example of Tom Hanks’ friend “Wilson” in
Castaway; as soon as Tom had someone to talk to and someone he could
bounce ideas off of (even if it was a volleyball), he started to make
better decisions.
Meet Wilson
7. Make Room for Yourself
Every entrepreneur faces obstacles; every society has an elite that
takes the preservation of their position and power seriously. They don’t
want you to succeed. The top levels of politics, media and business in
most countries form an identity- like the pigs in George Orwell’s Animal
Farm, at the end, the plebian animals can’t tell the difference between
their pig ‘brothers’ and their former human master. So it’s your job to
never take “No” for an answer.
Every Nation has an Elite—They Don’t want Any Competition, Thank you very much
8. Under Promise and Over Deliver
Lower expectations. Push analysts and media ‘back’. Your most
important signpost on the way to under promising and over delivering is
the decisions you take in HR. Your first hire, your tenth hire, your ten
thousandth hire should first and foremost have a good ‘heart’.
Good hearted people don’t quit on you when the going gets tough. And
it always gets tough in entrepreneurialist culture. Everyone who you
interview is going to have the right credentials- good education, great
experience.
Look for the ones who have a good heart- they’ll be team players and
they won’t blame everyone else when things go wrong. They’ll understand
that every job is 98% work and 2% glory.They’ll learn from their
mistakes and won’t repeat them. Never fire anyone for making a mistake,
fire them for making the same mistake (over and over). Always ask
yourself and your managers every so often, out of the 20 employees who
report to you, which is the person you’re least likely to turn to for
help in a crisis. Fire that person.
Virtually everyone can think of one person in 20 (just 5% of your
employees) who doesn’t cut it. You can add (a lot) by subtraction. When
you don’t do this, you keep deadwood around and the rot begins set- your
good employees see that someone can do little or nothing with few if
any consequences. That is a bad scenario.Remember: Take responsibility
for your own actions. Don’t pass the buck.
Learn from your mistakes. Tolerate mistakes in others, once. Hire
people who have ‘good hearts’ first, education and experience are
second. They stick with you and won’t fold at the first hint of trouble.
Don’t hire part timers if you can help it. Don’t let employees have two
or more bosses. There are no fallback positions. You are either in the
boat or stay on shore.
9. Don’t Overplan
Have goals and a short term plan and some longer term objectives but
realize how unpredictable markets, technology, competition and life are.
Remember long term forecasting is insanely difficult: for example, “THE
STOCK MARKET HAS PREDICTED NINE OF THE LAST FOUR RECESSIONS,” Brown.
Discovery
I have come to believe over the years that there are some things,
maybe many things that can only be discovered and cannot be planned for
or thought out in advance. I realize I am coming at this from the POV of
an entrepreneur, who does most things this way anyway. But still it is
true, I believe.
It also frustrates many people (my wife included) who want to plan
things out well in advance. I have already written elsewhere about the
futility of long range (and quite often short range) planning—too many
pieces are moving around and too many changes are happening day to day
in our political-economy for planning to be of much use.
How many economists thought petrol would soar to $145 a barrel two
years ago? How many thought it would drop from there to less than $60 a
barrel in less than four months? How many thought that Lehman Brothers
would go OOB before it actually did?
I personally believe economists can only tell you what has already
happened and sometimes they can’t even manage that—it took the Business
Cycle Dating Committee of the National Bureau of Economic Research
(NBER) a year to make a determination that the US is in a recession. A
year! Sheesh, any corner store owner could have made that determination
earlier than that. PhD not required.
So while planning may not be of much use, goal setting is. Humans are
much better at setting and achieving goals than they are at making
plans. I have always liked the US Marine Corps unofficial motto: “Show
some adaptability!” Trust me, it will save your life (if you are a
marine, blindly following a pre-ordained battle plan will surely get you
killed) and your business (if you are a business owner or CEO and, say,
in six months car sales drop from an annual run rate of 20 million
vehicles in the US market to a demand for just 10 million, your precious
plans are useless.)
Just to make things more complex (sorry about that), there are many
things in life and business that can only be discovered by experiencing
business processes or by living your life. Do you think you can plan out
who you are going to fall in love with? I believe that most of us
DISCOVER that. (According to Malcolm Gladwell’s thesis in Blink, you
might actually discover you love her in the first two seconds after you
meet her. Your unconscious mind is at work here. It is terrifically fast
and, in complex matters, often a better guide than the best you could
do after months of collecting additional data and ‘thinking things
through’.)
The first time the woman who was going to be wife kissed me, I got
lost on my way home—in my home town no less. I had to stop the car and
collect my wits for more than 15 minutes. I had NO idea where I was.
Then I realized, that’s the girl for me!
Recently I moved real estate Brokerages. I wanted to be in a place
that acted and performed like a team. In this industry, everyone says
they want to work in teams but, frankly, that is just so much hooey. In
place after place, your biggest competitors sit around the table with
you and will take your clients, ideas, inventory if they can.
Did you know that if you ask someone else in our industry to do an
open house for you for one of your listings and a Buyer comes in, likes
the place, is represented by a Buyer agent and makes an Offer through
that agent, you get paid as the listing agent, the Buyer’s agent gets
paid but the poor sap who did the open house for you gets nada?
So some young guy or gal, probably new in the biz, gets suckered into
doing open houses for you because you are too busy doing your Xmas
shopping and he or she gives up say five or six weekends before Xmas to
help you out but at the end of the day he or she may get nothing for
doing that. The rationale* is simple—this is the way we do it because
this is the way we have always done it and this is the way we will
always do it because this is the way we have always done it. Got that?
(* Senior agents do have some political cover for this—they say that
the new agent, by doing open houses for you, may get some people who
come in who are not already represented by an agent and thus may get
some Buyer clients for that home he or she is showing or if the Buyer
doesn’t like that home then for another one. Pretty tenuous cover, I
think.)
Commercial real estate isn’t any better and maybe it’s worse. Many
broker-owners compete with their own agents for clients and deals. I
can’t think of another industry where this happens on such a widespread
basis.
So I came to the new brokerage with the idea that we would try real
team selling. When asked to explain it, I could only say what it is not
by quoting the above examples and a bunch more.
But over the last five months, from the DOING OF THE WORK, I think we
are coming to understand what it might mean. It sure is different and
again I believe there was no way we could have planned out what we were
going to do in advance—we had to discover it.
I am amazed that so many of the people I work with are willing to
live through this experiment with me. The theory is that you are better
off with 25% of 30 deals say than 100% of five. Not only are you better
off financially (at least in theory), you feel you are part of something
bigger than yourself (which most of us crave and need) and you can rely
on others to have your back, not stab you in the back.
Now this is not for everyone—REALTORS are notoriously independent and I understand that.
There is nothing at our firm that says you have to join the team—be
an individual or form your own team, no problem. Just don’t engage in
unethical practices.
Some things we have learned is to put three agents on every listing
or deal. We are also doing Trade Record Sheets, TRS (which divvy up
commission income) that are really new in the industry. Instead of the
usual 50/50 or 72/25 TRS, ours look weird: they could be 12.5/12.5/25/50
or 6.25/6.25/43.75/43.75 (yes, we just did one like that!) or
33.33/33.33/33.33 or ….
I won’t go into too much more detail about what we are doing because
some of it is proprietary, but we are definitely discovering things as
we go.
If you are open to new ideas, opportunity is everywhere in the
‘ether’. The other day I happened to put one file down next to another
one and it suddenly occurred to me that I had a match between Buyer and
Seller. Despite having my own data base software, it just had not been
apparent before. Making connections is often a random event. You just
need to SEE it.
Sean Murray in our office had a big insight the other day. Don’t many
middle aged, potential condo buyers have homes to sell? What if condo
developers allowed us to help them sell more condos by moving the
existing homes of their potential clients? Now how did Sean discover
that? I can tell you. I asked him to call a condo builder for some info
on their project and a light went on when he was talking to them about
their problems—this just popped out of the conversation. It was
completely fortuitous but Sean was OPEN to the process of discovery.
Another REALTOR friend of mine, Dan Oakes, had another big insight
last year. There is a shortage of commercial condos in Ottawa—if you
want to own your own place of business, it isn’t easy to do here. So Dan
was driving around one day on one of our main streets and he noticed
how many private residences there were on major arteries like Carling
Avenue, Maitland Avenue, St. Joseph Blvd., Churchill, Woodroffe, etc.
He thought: “Hmm, if the City of Ottawa got their act together, they
could rezone all these homes for commercial/residential purposes and, in
one fell swoop, create a huge increase in inventory for would-be
owners.”
This initiative would have some terrific results:
a. More business owners could own their own place. They would no
longer be subject to rental increases set by Landlords, they would have
security of tenure, they would have some diversification of risk by
owning some real estate in addition to their operating business, they
could renovate their premises to their requirements, they could benefit
from property value increases.
b. Residents on these main arteries, many of them elderly, would have
more Buyers to sell to and at higher prices. I mean who really wants to
live on Maitland with 20,000 cars a day buzzing by your living room at
more than 60 kph less than 20 feet away?
c. The City of Ottawa which is suffering its own financial problems
would get a large increase in their municipal assessment base and a huge
increase in realty taxes (commercial rates are around four times the
residential rate) while costs for commercial assessment are much lower
(very few city services are extended to commercial establishments, who
must, for example, pay for their own garbage removal and don’t need
schools, play grounds or libraries built for them).
d. Many of these properties are in need of significant repair—their
foundations are failing, their roofs need replacing, their facades need
refacing, their building envelopes are not weather-proof, their
interiors are shabby and so forth. It probably isn’t worth doing if they
are used for residential purposes but almost certainly would get done
if they were used by a dentist, a CA, a law office, etc.
e. Many of these buildings will be multi-use with second floor
apartments or maybe basement apartments with the ground floor being used
for commercial uses. So some affordable housing may also come out of
this initiative.
f. REALTORS would make more money too. And that surely is a good thing!
Now this makes a lot of sense but don’t hold your breath for the City of
Ottawa to act. This is one of the worst run cities in Canada with a
staff that is more bureaucratic than the guys running the UN.
Anyway, do you think Archimedes could plan out how he was going to
figure out how to measure the density of King Heiro’s
irregularly-shaped, gold crown before the King of Syracuse lost patience
and executed him?
He needed to be open to new possibilities. He subsequently noticed
that large, irregular objects (like the male of our species) cause water
levels in public baths to rise. And so, he discovered the principle
that the buoyancy force exactly equals the weight of an immersed object
and with that, he immediately recognized he could measure the density of
the crown to ensure its purity was as advertised.
I would bet that things like Amazon’s use of its relational data base
(asking the question: “Would you like to see what other people who
ordered this book (CD/DVD/etc) also ordered?”) was discovered from
contact with their client base. This is why pre-selling is so important
for start-ups or even for large companies that are starting a new
division or selling a new product or service. Contact with customers
(and potential suppliers too, BTW) will lead to many, many changes and
improvements that can not be found any other way than by the actual
doing of a thing.
Postscript: I think most artists also find that their art is a
process of discovery. For example, a sculptor may discover or uncover
the image in a block of stone. A novelist may discover or unearth things
about their characters as the book is being written. I think that the
scriptwriters for the hit television show LOST probably are discovering
the story as they go along. I would like to talk to one of them. There
is probably no way that for a story with: a) such a large ensemble cast,
b) back stories that are woven into the fabric of the show, c)
timelines that are extremely hard to track, d) characters that behave in
a manner that is consistent with their back story development and e)
plot lines that constantly delve into the past to resolve present
conundrums, could ever be written in a conventional manner—they are open
to the process of discovering the story as they go. And so should you
be in whatever field of endeavour you toil in—science, business,
politics, arts, social enterprises, etc…
Postscript2: You can become more creative and more open to discovery
by: a. getting lots of rest, b. getting some exercise, c. not drinking
and thinking, d. don’t take drugs, e. focus on a problem then stop if a
solution does not present itself, f. sleep on it– let the subconscious
work on it for awhile, g. focus on it again, h. get some more exercise,
i. sleep on it again, j. don’t suffer from the not-invented-here
syndrome: if someone has a better idea or way of doing things, adopt it
immediately, k. read a lot, l. draw, m. write notes, especially at 3 am
when you wake up with a good idea, n. talk about it to someone you can
trust– verbalize, o. listen to your subconscious and your ‘gut’
feelings, p. be open to learning new things and new experiences (this
keeps you young at every age), p. do the hard stuff, q. exercise your
mind!
Here is an example: What is the non-obvious next number in this series?
1,3,5,7,…
Answer: 11 (these are prime not odd numbers)
10. Hope
You need to also give some thought to the role of ‘hope’ in human
endeavours. Hope is a central requirement to survival- survival of human
life and human businesses and organizations too. You need to engender
hope in your employees and your suppliers and customers and clients too.
If they are hopeful about the future and about your future, it will
help you achieve your goals.
One day in the mid 1990s, I was walking around the Carleton
University Campus in and I ‘discovered’ a train tunnel running under
Dow’s Lake, which is adjacent to the University. Curiosity got the
better of me and I scrambled down the embankment. The foundation stone
circa 1960 was impressive to read.
Later on, a few minutes of research uncovered an interesting
story—Canadian National Railways had needed a new cross-Ottawa line and
the only way that the then Chair of the National Capital Commission
(NCC) would agree to it was if the CNR would bury it under the lake. The
NCC apparently wanted to protect views in the National Capital Region.
Now I realize this is kind of frivolous when compared with the
enormous challenges that say LDCs are facing but I was struck by the
courage it took on the part of the NCC to take this position. This got
me to thinking about an earlier trip to Calgary, Alberta and the
foothills of the Rocky Mountains.
If you have ever looked at the Rockies from the eastern side and
thought about the idea of running a rail line over those mountains as
Van Horne did beginning in January 1882 and completing the crossing just
three years later in 1885… what courage these people had.
11. Ideas are Cheap
Approximately, 35 million Americans are right now in their basements
working on your business plan. Some of the best new businesses are
simply good execution of technical changes in existing systems and
services. Fed/ex comes to mind. It isn’t e = mc**2!
Fred Smith saw: a) a need for overnight, guanranteed delivery, b) a
future market made up of time crucial (predominantly) packages, c) an
existing service provider that was slower and unlikely to move in this
new direction (the US Postal Service), d) a way to actually economically
achieve this objective (the hub and spoke system). Until Fred Smith
came along, a network of ‘n’ cities had a total number of possible
routes (N) equal to n(n-1)/2. For 50 cities, for example, there are then
1,225 possible overnight routes to connect every city in the network to
every other city and, presumably, packages can go in both directions on
each route so that the total number of overnight flights required could
be as many as 2,450 flights, an obviously impossible task. By
constructing a hub and spoke system, Fed/ex was actually able to greatly
reduce this number and thus implement Smith’s vision. A useful (second
order) and timely insight but it’s not Newton’s Laws of Motion. “In the
end, a vision without the ability to execute is probably a
halluciantion,” Stephen M. Case, AOL Time Warner. Execute, execute,
execute.
Fred Smith’s idea was “overnight package delivery” is ‘cheap’ because
it is easy to say, but very difficult to do. On the other hand, his
creativity in implmentation is very valuable because the hub and spoke
system that he devised is the basis for a hugely successful operation:
ideas are cheap but creativity counts.
“Why invent radically new things that are like science-fiction movies
when there are smart, gifted people who have been working on maps for
centuries, trying to convey lots of information on a flat space? I think
that invention is a terribly difficult thing, and we should try to get
away with the minimum that we can,” Tim Bray, inventor of XML language
for the web, on why he uses maps as the basis for searching for
information on the Internet, November 2002.
12. If you can’t Connect with Potential new Clients and Customers in a Cost-effective Manner, your new Enterprise is Doomed
If you need to spend huge sums on a SuperBowl commercial before you
acquire your first client or customer, your new eneterprise is doomed.
It’s just as true for a charity or not-for-profit: no one like to give
money to a charity that uses up more than about 15 to 20% of the funds
raised for its operations and management. So reaching your audience in a
cost-effective manner is key.
Guerrilla Marketing is just another term for smart marketing
(substituting brains for cash in the marketing wars). In marketing,
nothing sells better than faces. Nothing gets more micro second
recognition than faces. Faces are important everywhere even in
cyberspace of the near future (see Neal Stephenson’s description of the
‘metaverse’ in Snow Crash.)
Bootstrap your business—using both guerrilla marketing (and social
marketing) and bootstrap financing. Start small and grow it. The slower
you go sometimes, the faster you go. Business Week (February 19, 2001)
ran a headline in their e.biz report: “Shakeout! … How will their (VCs)
woes affect startups?” Well, some of the best businesses were started
with bootstrap financing (Mark McCormack started IMG, an international
sports management group with $500 and one client who happened to be
Arnold Palmer).
Bootstrap startups won’t be affected at all by the VC shakeouts of 2001 and 2009.
The best startups are usually capital starved.
They learn how to use a dollar wisely.
Entrepreneurs see things and connections and opportunities and
relationships that others miss. They build the old fashioned way: with
customer service and good products and services.
You need financing? Everyone suggests start-up founders go to the
‘bank’, VCs, rich ‘Uncle Buck’, Mom, Dad, your friends. How about ‘none
of the above’? None of these folks have any real stake in your business
plan. So, who are the true stakeholders? They are your suppliers, your
(future) customers: people you buy from and sell to. They will help you
get started if they see that your b. plan will address some of their
needs.
Afterall, what is your new business worth if you have an advance
order or contract with a credible customer or client? A lot more than it
is without it. It builds your credibility; it builds your potential
cashflow; it reduces uncertainty; it allows you to finance future
revenues (receivables). Presell everything.
You need a ton of money to build your product or service? Get at least half of it on supplier credit.
Use guerrilla marketing to make your limited funds go further. Again,
the slower you go, the faster you go. If you have a secure base to
venture out from, you are more likely to succeed.
For every ‘overnight’ success there are thousands of examples of
people who built great companies over very long periods of time measured
in decades. Sam Walton comes to mind.
Remember you are not the market. You may like your idea but maybe you
are the only person who does. The reverse also applies. The market is
always right, even when it’s wrong. Understanding the market and
developing a world view or a ‘mental map of the way the world works’ is
incredibly valuable to the entrepreneur. That way you can perform what
Albert Einstein called ‘thought experiments’ to assess whether your
great new idea is going to work before you do it. The human mind is the
fastest tool and is a far more accurate barometer of success than any
number of market surveys if you have developed an accurate mental map of
the way the world works.
Avoid reverse marketing and bad PR. There are a lot of things that you initiate that make the situation worse.
Most likely, you will rely on the following for bootstrap financing
of your new business: a) angel investors, b) family and employees, c)
supplier or vendor financing (30, 60, 90 day terms), d) customer
pre-sales, e) factoring, f) fixed asset financing (leasing), g) personal
debt, h) credit cards, i) trading activity (trading up the food chain
is a typical entrepeneurial strategy- start a business so that you have
some ‘chips at the poker table’ then sell it before the peak of the
market is reached and start the (bigger) one you really wanted in the
first place- trade up to the Sens and the NHL, for example; always sell
‘too soon’ and leave something on the table for the purchaser-
obviously, the purchaser needs some value otherwise why would they buy
it in the first place?), j) strategic partners, k) employees, l)
accretive selling (consulting assignments, for example), m) accretive
selling with strategic partners, n) accretive buying (a homebuilder
start-up, for example, or the purchase of a division of an (often large)
company which division doesn’t fit their model anymore. You use the
assets of the targeted division to secure the debt you need to buy it in
a classic LBO or MBO.
Even after paying the debt, you are left with positive earnings, you
hope. Accretive buying means that you buy when you are weakest and sell
when you are strongest in a counter intuitive way. This is different
from ‘buy low, sell high’, which is counter cyclical in a macro economic
sense.) Investors are likely to come from a group that has an interest
in your success: strategic partners, suppliers, family, employees,
future customers. Even persons or organizations that are geographically
tied make ideal targets for certain types of investments. Find out who
benefits and sell them on your start-up. He/she who benefits, pays.
He/she who pays, benefits.
Trading activity includes such strategies as buying an option on a
piece of land and flipping it (real esate speculators are professionals
at it), buying stocks on margin, selling short, buying airplane options
and selling them, LBOs, MBOs, arbitrage, and so forth. All are risky but
can yield large sums in a short period of time, enough to give you a
‘grub stake’. Even large companies do this: flipping electricity
contracts in the California power crunch of 2000/01 was immensely
profitable for aluminum producers. It paid them to shut down operations:
they could make more money by speculating in the power market than
producing metal. They bought power on long term contracts at $22 per KWH
and sold it in the spot market for $430!
Rememeber that equity is more expensive than debt. But equity is more
patient than debt. Equity investors including angels and VCs are
looking for returns in the 30 to 40% p.a. range. You, as the founder and
key entrepreneur, should expect 100% p.a. returns on the total of a
combination of your cash and sweat equity contributions. Bank debt will
come in at prime plus one to prime plus three depending on your credit
worthiness (currently in the range of 7 to 9% p.a., March 2001).
Clearly, use of low cost debt increases your leverage and improves
the IRR for equity (it also increases your risks). Shareholders are also
frequently asked to provide the company with (relatively) low interest
rate loans as well as make direct equity investments in company
securities. Debentures are a common form of financing for start-ups and
they are a combination of debt and equity. Typically, they have a coupon
rate in the range of 8 to12% with an equity conversion privilege that
ups the return to the 20 to 30% range.
It is important for most start-ups, even if they are not
bootstrapped, to have at least three pre-committed clients or customers
before much else is done. This is now a requirement for most VC funding.
You can sell almost anything to one fool, maybe two but not three.
Considerably less than 1% of all startups actually ever get close to
any type of VC money, which means that you are left to bootstrap
financing and bootstrap (guerrilla marketing). That’s OK though: more
than 990 out of every 1000 new businesses are in the same situation.
Capital starved businesses are often hardier anyway, when they make it
they know that every business (even IBM) is built every year, one
client, one customer at a time.
There are no shortcuts, really. Terry Matthews once said after being
congratulated on building a great new Company (Newbridge Networks): “It
takes a minimum of 7 to 12 years to build a great Company and we still
have a ways to go.” And remember, this is from someone who had already
done it (with Mitel).
When you read about someone building a company in 18 months and
flipping it for millions, you are really reading about the lotter
winners of life: it isn’t real, not for you.
You can’t plan on winning the lottery but you can plan on
entrepreneurial success: it just takes a generation of effort and one
customer, one client at a time.
The old Hollywood Studios amaze me. They spend incredible amounts of
money in absolutely incredible, sometimes stupid ways. Yet they survive
nincompoop managers and occasionally produce marvellous masterpieces. No
startup could ever operate that way and survive. But many of the
Studios have been around for 100+ years, laying down deep roots and
layer upon layer of relationships that bring the best talent on the
planet to Hollywood, California. Deep roots, many layers, it takes a
long time to do that and then you almost can’t fail. Once you become
part of abusiness eco-system, you are not often going to fail…
13. HR, Hire Up!
The most important decisions you make after you establish your business model and get the business going, will are your HR ones.
Get the right people and you are more than halfway to success.
Do your best in the interview process, don’t waste time on people
that you feel may not turn out. But take the time to find the right
people. When hiring for any position make sure to interview at least
four different people. Your objective is to try to get to know these
people and understand their needs. Just like selling your product to the
end user, employees have to be sold also on their job.
Ask a lot of anecdotal questions. “Tell me about the worst experience
at your previous employment”, get to know how they deal with pressure
and tension. Tell them about your company’s vision and goals, then ask
them about their personal goals. “Where do you see yourself in five
years?” Everyone has a secret dream; find out what their’s is.
If you feel there’s a fit (work hours, challenge, compensation etc…)
then move forward. Build commitment from day one, be serious about your
idea or company. Get to know what makes them tick, what motivates them.
Hint.
It’s not always money!! Conduct 2-4 interviews and make sure they
completely understand the environment they will be immersed into. No
surprises. Check out their blogs and facebook accounts.
As an employer, always honour your commitments to your staff. They
are your representatives, your front line. Remember they have different
lives and each should be treated as individuals. When times call for it,
be firm. But never disrespect people. Always approach your staff in a
proactive manner when addressing problems. Look to them for input and
solutions. Make them accountable.
Take the time (once every 6 months) to recognize your people and their achievements.
Reward those that achieve more, work hard, play as a team, and do
that little bit more. When dealing with conflicts always address people
one on one in a private setting. When dealing with consistent bad
performance get to know the issue and assess whether it’s a commitment
or skill issue. If it’s a skill issue, then use your experience to
transfer those skills, if it’s commitment, then agree that the
relationship should be terminated. Always try to terminate a
relationship in the friendliest manner possible. You never know when
your paths may cross again!
If I Gave You a Million Dollars… You would be poor. With apologies to
the Barenaked Ladies for a poor parody of their tune, the fact is, it’s
true. Most mega buck lottery winners are worse off less than five years
after winning—they have drug and alcohol problems, they have lost their
jobs and families, they have a bunch of new best friends, all of whom
have can’t-miss business ideas that tanked. In entrepreneurship, we say
it differently—“Give a person a fishing rod, not a fish.”
Recently, a friend of mine sent me an article on Zappos, a web-based
retailer that grew to around $1 billion per year in sales in less than
ten years, in part, because of an emphasis on customer service, CS. I
can’t believe the number of companies that believe that CS is a cost
centre—it is not. It’s obviously a profit centre. If you get most of
your business as Zappos does from repeat customers (75% of their volume
is from repeat customers!), just imagine how much money they save by not
having to spend precious marketing dollars on replacing unhappy
clients?
They do things like provide free shipping… both ways. One of the
biggest drawbacks of using web retailers is returning goods. They take
the hassle out of returns. It’s expensive but the results are in…
excellent customer service, works.
To drive home the point, Zappos will pay any new hire $1,000 to quit
after the first month. No questions asked. You can have $1,000 to go
away. Zappos has realized something that almost no one gets these
days—your HR is the number one thing you have going for you. If you have
good people, you will be much more likely to succeed.
Now $1,000 to get rid of someone who provides lousy CS, who doesn’t
buy in to the idea that the customer is number one and who doesn’t buy
in to your corporate culture is a really cheap way of de-hiring someone.
Trust me, it costs a lot more to fire someone—you have to give them a
reasonable period of time to improve, meanwhile the lousy customer
service may continue. You lose orders, you get bad word of mouth and
your brand suffers.
One unhappy client tells two others. You need to give them a warning
letter then you must monitor their performance and meet with them a
second and maybe a third time. This takes up a lot of management time.
You need to get your legal staff to prepare a letter of dismissal.
You have to provide them with notice or payment in lieu of notice.
(The latter being infinitely preferable because you don’t want them
around for five more minutes damaging not only your customer relations
but poisoning your staff.)
You may get sued for wrongful dismissal. Then you need to prepare a
defence, present yourself for cross examination for discovery, attend a
settlement conference, go to trial if you can’t settle and, if you win
or lose, face a possible appeal. It’s endless. One thousand bucks to pay
someone to go away who doesn’t want to be there and who doesn’t buy in
to your corporate culture is a bargoon.
Now what if your Rich Uncle Fred gave you the World Financial Center
in NYC consisting of four towers of eight million square feet in the
centre of Battery Park for free? A heck of a deal, right? Wrong. I would
predict that you would be broke and lose this wonderful portfolio in no
time at all.
It isn’t your buildings that produce revenue for you, it’s your
people. If you don’t have great leasing people, maintenance folks,
property managers, financial controllers, contractors, cleaners,
security personnel, managers and so forth, you won’t manage your
portfolio well at all. Pretty soon, tenants will be giving you notice
and you won’t be replacing them and, if you did, you might get the wrong
ones—tenants who don’t pay their rent are worse than no tenants at all.
Do you know who pays the operating costs and utilities when your
buildings are empty—you do. Do you have any idea what it costs to
pay—realty taxes, cleaning, garbage removal, security, snow removal,
maintenance, heat, gas and electricity—for a Class A Tower in New York
City? It is at least $45 per sq. ft. per annum; that works out to
$360,000,000 per year for the WFC!
Before Uncle Fred gave you those buildings for free, you were happily
working as an advertising executive somewhere earning $100,000 per
year. Your annual salary (if you still have a job) can support an empty
WFC portfolio for .101 of a day or around two and a half hours. You
would lose your real estate portfolio before lunch.
Stick to what you know. Every business has ‘secret’ levers you pull
to make them work. No business is easy. Even one you get for free.
It’s great to have a good business model, a few launch clients and
customers and some cashflow, but after you get the business off the
ground, your first hire and every one after that are the most important
things you will do. Be like Google, get the very best people you can.
There is a great book, Blink by Malcolm Gladwell (Little Brown and
Company, 2005), that talks about using the power of your unconscious
mind (the part of your brain that forms impressions in the first two
seconds of any situation) to make certain decisions. He also points out
how it can work against you.
Gladwell talks about how hiring for the wind section of a Symphonic
Orchestra can be overwhelmingly influenced by the eyes instead of the
ears. He calls this the ‘Warren Harding’ effect.
Warren Harding is considered the worst President of the US ever
(although I suspect that President George W. Bush will, in the distant
future, vie for this role). But he looked the part—tall, good looking
and imposing. And he got elected despite being patently unsuited,
unprepared and unready for the job.
So in auditions for the wind section, a good looking, tall imposing
male has every advantage over a petite woman. Women were ‘known’ to be
unable to play with the strength, vitality and range of a man. But it
turns out that when Maestros were encouraged to do blind auditions
(placing musicians behind screens), women could, in fact, play as well
or better. In less than a generation, women make up nearly half of
US-based orchestras (up from less than 5%).
Walt Disney knew this. He realized that an attractive female could
unduly influence his judgment of the calibre of her voice. He placed all
would-be Snow Whites behind a screen. The result is a magical film that
saved Walt’s company from bankruptcy in 1937.
The number one thing we look for in our employees is good
heartedness. Pretty much everyone will have the required credentials or
they would not be in the interview in the first place. What we want is
people who care about people—their colleagues, their clients, their
suppliers, their families, their company, their city, their country.
These people don’t quit when the going gets tough. They share
information. They are generous with their time.
This you can probably deduce from the first two seconds after you meet someone, if you pay attention.
14. Keep the Winners and Dump the Losers
Know when to held ‘em and when to fold ‘em. How to recognize ‘Zombie’
Companies when a company or project or division or parts of a company
are dead and need to be pruned. Don’t marry your ego to your business.
Don’t let it get in the way.
When bad things are happening to your business, as Ripley (aka,
Sigourney Weaver) says to her crew mates in the Alien series: “Deal with
it!” Once the event is completed, it is forever in the past. Don’t
dwell on past failures or live off of past successes: you are only as
good as what you did today, not only in sports but in the business world
too. When you get to be successful; remember what you did to be a
success and remember who you were and where you’re from. Even large
companies can be destroyed in a hurry when they forget the keys to
entrepreneurial success.
15. GTBMR, Get The Business Model Right
If you have a bad business model, you are going to work hard, possibly for a long erpiod of time, to no great effect.
Don’t waste your life—as Jack Dawson said in the film, Titanic: “Make
each day count.” Your career may span 40 years but you can easily waste
four or five years on a crummy business model; that’s ten percent of
your career, wasted!
You can read THE COMPLETE BUSINESS MODEL here: https://www.eqjournal.org/?p=692.
16. Limit your Personal Risks
For peace of mind and a clear field of fire, take steps to limit your
personal risks. In a very litigous society, you can be sued for almost
anything. Any litigation has risks. Even if you appear to have the truth
and right on your side, there is still a risk of failure.
In Ontario, you may be sued as a director for environmental
contamination, unpaid employee remittances, statutory payments (PST,
PAT, GST). A limited liability company does not protect you from this.
Strategies for limiting personal liability include: a) exercising due
diligence, b) placing personal assets under your spouse’s name, c)
directors’ liability insurance.
Personal investing for entrepreneurs often is quite conservative
(using, for example, the “Warren Buffet” method of investing; invest in
value: great companies with strong brands and good management; hold for
long periods, avoid commissions and capital gains taxes, sleep well at
night, stay away from day trading, timing the markets and general
‘casino’ style investing). Take risks in your business not your personal
investing.
Try not to pledge your personal assets in the course of your
business. Try not to give personal guarantees. While companies you own
may go into bankruptcy or Chapter 11, never allow yourself to file for
personal bankruptcy if it can be at all be avoided. The latter will
cause you no end of grief: you can not get a loan or a credit card; you
can not be an officer or director of any company.
Bankruptcy laws are there for two reasons: a) to protect creditors
and b) to allow the entrepreneur to start again. If you go bankrupt
personally, that may not be the end of it. The Trustee with the
concurrence of the court can reach beyond the bankruptcy and compell the
individual to pay a portion of their future earnings to their
creditors. You will end up paying the Trustee’s fees and the creditors
too. However, if you do or your company does go bankrupt, you have four
days to get over it: Day 1 (Feeling Sorry for Yourself), Day 2 (Getting
Some Exercise), Day 3 (Thinking About Your New Future), Day 4 (Getting
onWith the Rest of Your Life).
Remember to practice the smart truth in these difficult
circumstances. Say little. Most people hang themselves (unfairly, in
many cases). Remember the Bankruptcy Act is there, in part, to also help
you get a new start. Don’t throw yourself away. It is a terrible waste
in any society to unnecessarily dump our most valuable resources (our
human resources) because they have failed. From failure comes
experience, from experience comes success.
17. Protect your Personal Reputation
“Good will win, if Good is very, very careful,” said First Officer
Spock on the USS Enterprise as Captain James T. Kirk fights the Captain
of the Gorns. Pioneers get shot at and good may not win.
Linear thinkers tend to get wiped out in entrepreneurial endeavours
by their competition, the media or the political establsihment. P = M =
B; there is an identity between politics, business and the media at the
highest levels of most societies and they will seek to protect their
positions. There is no welcome mat for gate crashing entrepreneurs.
High ethical standards and smart, timely disclosure will establish
your reputation for fair dealing and when things get tough, as they
inevitably do, people will be willing to go out of their way to help you
or cut you some slack (even bankers, VCs and Vulture Captialists- i.e.,
cut throat VCs) because you have a reputation for fair dealing. Every
town or city has less than a few hundred people who are really doing
things and make a difference at the macro level. If you get a reputation
for (as they say in legal circles) sharp practice, you are ultimately
doomed.
18. Buy Low, Sell High
People are sheep. Go against the tide which is easier to say than to actually do.
Do you want to make money in the real estate business?
Then buy when everybody else is selling (i.e., when Cap Rates are the
highest and interest rates are the highest) and sell when everyone else
is buying (i.e., when Cap Rates are the lowest and interest rates are
the lowest). A simpler way to say this? Buy low/sell high.
Now this is easier said than done. We like to buy what everyone else
is buying. The salesperson who says about your new suit or dress: “This
is really in this season—everyone who is anyone is buying this” is
telling you this because it works. It’s the single biggest closer.
It’s hard to buy real estate when no one else is and interest rates
are high. Everyone will tell you not to—your CFO, your auditor, your
bank, your spouse, your lawyer, your BOD (Board of Directors), your CAO,
COO, even your CTO (Chief Techie) will not want you to—she or he will
want more dough for their department instead—it’ll have a better ROR, or
so they will tell you. But you are the CEO and, at the end of the day,
the decision is yours.
The best deals I ever did (and if only I had stuck to Real Estate and
not got into other distractions) were when real estate markets were
depressed. I bought some land in Ottawa near a major, east-end shopping
centre in 1983 when interest rates were 19%. The land cost me $1 per
square foot for ten acres. In 1984, I got an offer for the land at 50
cents a square foot—I thought I was in real trouble. But I went to my
Dad and he reminded me about rule number 1—buy low/sell high and I
declined the offer.
By 1985/86, interest rates were down by half and I sold four acres
for $10 per square foot to an auto dealer and the other six acres to an
industrial roofing company for $12. We made about $4m in three years on
an investment of $450k; you don’t need to do an IRR calculation or ROR
or ROE on deals like this—they are good deals. (That money too later
found its way into the Sens. Money in NHL hockey seems to go on a one
way trip—in, but never out.)
In 1994, the real estate biz was again in a slump. (These down cycles
seem to come about every seven years and real estate tends to lead the
national economy into a recession and lag it coming out which means it
usually lasts longer than the general recession. But when real estate
bounces up, it bounces in a hurry and you have to start selling right
away if you want to time the market). I bought 60 acres of industrial
land in Kanata for just 15 cents a square foot. I couldn’t believe
it—people were just giving the stuff away—prices were lower than at any
time since the Depression of the 1930s for goodness sake. By 1999, in
the tech boom, serviced industrial land in Kanata was selling for $6 to
$8 per square foot, if you could find it.
19. Turn Cost Centres into Profit Centres
Be creative. Think around corners. Think things through. Sleep on
‘it’ over night. Listen to your intuition. Force yourself to go over and
over a problem over a period of days or longer to turn it into an
opportunity. You can learn to be more creative. Necessity is the mother
of all invention.
Entrepreneurs (like engineers) are people who can do for a dollar what any fool can do for two.
Nothing focuses the mind like the fact that you are being hung in the
morning. Example: the lone holdout in the Palladium land assembly
actually improved the ultimate traffic solution for Scotiabank Place by
forcing us to move the interchange west a few hundred metres and giving
us a northern access to SBP in addition to a southern access splitting
the 80% of all traffice coming from the east into two and making
arrivals and departures much more efficient.
Practice the Yacqui way of seeing. For example, seeing the spaces
between the leaves of a tree rather than the leaves. Hearing the jazz
notes that the artist doesn’t play. Seeing the things that a great
architect didn’t build. ‘Thousands can speak for one who can think.
Thousands can think for one who can see. To see clearly is poetry, prophecy and religion, all in one.’ (Rankin.)
Make sure you use appropriate technology and technique and level of
resources for each problem. Don’t spec American-style suburban homes to
solve an affordable housing problem in the third world.
Jack Welch talks a lot about differentiation; he means it too in all
facets of business: product or service differentiation, differentiation
in HR (rewarding your top perfomers differently from run-of-the-mill
performers), etc.
In the real estate business, every time you drawa line on a piece of
paper, you make more money- severances, mini offices, retail at grade
with apartments or condos above, offices with lofts, offices with water
views, offices with balconies, indeed, if you make every space in a
building a bit different from its neighbor, people feel special and will
pay more. The web will make it possible for tract home builders to
‘customize’ their product and charge more at the same or lower cost, for
example.
When we operated mini offices in the 1980s, every month we lost money
operating the word processing unit. We sold the rights to operate that
business for $65,000 and they paid us rent. Within three months that
micro entrepreneur who ran that unit had turned it around and was making
money.
20. Impeccable Warrior
To be a successful entrepreneur, you have to be an ‘Impeccable Warrior’ (from Carlos Casteneda’s The Yacqui Way of Knowledge).
Don’t drink and think. Don’t smoke. Pursue lifetime fitness (not peak
fitness). Eat moderately and well. Get enough sleep. Drink little or
nothing. Don’t take drugs. As the ancient Greeks said: “Everything in
moderation.”
The Dalai Lama suggests: “Try to get 20 minutes alone every day.” He
also says when you have a difference of opinion with someone: “Deal with
that issue. Don’t bring up the past.”
Deal with the present. Assigning blame is usually not helpful in resolving matters, expecially in a crisis. Know yourself.
You need to engage in lifetime learning: as soon as you feel you know everything, you will grow old.
Taking responsibility and looking in the mirror first and keeping
your perspective when everyone around you has lost theirs are key to a
successful career. A career is an agglomeration of achievements and
learning experiences. Remember, sometimes the ‘centre does not hold’;
your next failure is sometimes just around the corner after your
greatest success. Learning to deal with failure often separates the
successful individual from the unsuccessful.
Work hard and work smart. Get up every day and go to work. All you
can do, is all you can do. “The harder I work the luckier I am,” Stephen
Leacock.
There are both positives and negatives in choosing to become an
entrepreneur. Make your choice an informed one. As Owner or President of
a company, you are responsible for everything. If things go wrong, even
if it isn’t your fault, it is. You never get off the hot seat and you
can never share or delegate this ultimate responsibility. All
entrepreneurs get tired of this and from time to time try to get someone
else in to do this part of the job. Never do this. When you are fed up,
share your lonliness with someone you can trust: a mentor, a peer. It
helps to know that all entrepreneurs have the same fears and many are,
in fact, quite lonely. If you really can’t take it anymore, it is time
to sell instead of trying to pass the buck, bringing in a partner,
hiring a new manager or absenting yourself. Do any of these things and
your business is doomed.
The Impeccable Warrior and the Life of an Entrepreneur:
a. Complete your education.
b. Get regular exercise: buy an exercise bike, go for walks, play tennis, whatever.
c. Don’t drink too much and don’t consume or use other substances.
c. Watch your diet: less starches, less sugar, limited fruits, more green vegetables, more protein.
d. Check in with your coach or mentor regularly, at least monthly.
e. Expect to work at least 60 hours each week.
f. Manage your time efficiently so you can have some time with your family and friends too.
g. Work smarter and harder.
h. Personal success and professional success is hard work.
i. Commitment is important.
j. So is focus.
k. Know when to quit, when something isn’t working and when to change to something new.
l. Embrace spirituality.
m. Entrepreneurship is a lonely life.
n. Beware your fear of success.
o. Become an entrepreneur for the right reasons: not to be your own boss
but because you can: a) create more interesting things for you to do
than other people can create for you to do, b) be a responsible person
and take ownership over your own life and become an impeccable warrior,
c) make more money, d) help others too.
p. The moral underpinnings of entrepreneurship are based on Adam Smith’s
principal that your first duty to society is to ensure that you and
your family do not become a burden on your fellow humans.
q. The world is a tough, competitive place and entrenched interests will not want you to succeed.
r. Success takes years of effort: reading about persons who have been
successful in months is like reading about lottery winners; you can’t
plan on winning the lottery so plan on taking years or decades to
achieve success.
s. There is always some luck involved in success but the harder you work, the luckier you get.
t. Lead by example and nurture your colleagues but never tolerate those who make the same mistake twice.
u. Surround yourself with positive people at home and at work.
v. Entrepreneurship is an exercise in positivist thinking: if your partner or employees are negativists, dump them.
To be a successful entrepreneur, you need to able to lead and
co-ordinate your team. Team members are not only your employees but also
your suppliers, your clients and customers and your banker, your
shareholders, your lawyer, your accountant, the media, the
community-at-large, community associations, trade assoications,
politicians, government ministries, regulators and many others.
You need their confidence and trust to be successful and you need to
be able to communicate with the team accurately and successfully. People
make better decisions when they are fully informed: don’t hoard
information. A team that is top down directed can only move as fast as
the entrepreneur, you, can move. Teams that are networked with you at
the centre of an interconnected, communicating web move much faster and
are synergistic and are learning organizations.
Probably the most important decision you will make is who to select
to be on your team. They must trust you. You must be able to trust them.
I happen to believe that the number one thing in life is not love but trust; I learned that after some hard life lessons.
Whether you are picking an employee, a supplier, a banker, a lawyer,
pick the best not the cheapest. You should also carefully select your
clients and customers. Firing clients and customers can sometimes be the
best thing for your business. 20% of your clients take up 80% of your
time. Fire some of these and you will be more productive. Recruit people
who are as good as you are or better. Don’t fear the truely expert.
Don’t be afraid if someone knows more about something than you do.
Don’t react like the not-invented-here manager who can’t stand it
when someone else thinks of a good idea. Give credit where credit is
due. Learning is a lifetime exercise for everyone including you- adopt
best practices wherever you find them.
You aren’t necessarily in a popularity contest as a leader: your job,
rather, is to make your views, positions and goals popular amongst your
broadly defined team, which btw includes not only your employees but
your suppliers, your clients, your community and the regulatory/legal
framework within which you work.
Never lead-by-fear. Remember that real power comes from ability, not
the organizational chart, not from age, not from title or position.
“You don’t want to sit on the cart, you want to be the one pulling
the cart,” Roger Babson, Founder of Babson College, a leading school in
entrepreneurship, 1919.
Leadership is a key to getting you and your team (your whole team
including your employees, your community, your clients and your
suppliers) from the starting line to safely across the chasm. All human
progress starts with an act of faith. No matter how much analysis is
done before a project is started, at the end of the day there are still
so many unknowns that ultimately we do what we do because we have faith
and confidence in it.
My daughter got a job as a life guard at Red Pine Camp on Golden Lake
in Ontario. It’s a family camp with over 50 staff and 350 campers of
all ages in camp at any one time.
She asked me why people love to gossip so much. I told her that gossip can serve a useful purpose, in fact, three purposes:
a. It establishes a pecking order. Have you ever noticed that group
dynamics always have an informal structure to them? It doesn’t matter
what the formal org. chart says, some people just have more say than
others. Two peers are not the same; one is almost always dominant. It is
the ‘unseen’ pecking order that makes an organization actually
function. If you have two lead dogs in any one group, that organization
is going to be dysfunctional. Gossip helps to establish that. You need a
pecking order: one vision must prevail.
b. Gossip gives you information on people and a heads up on who’s who.
This can be incredibly valuable– if someone has a bad temper or is
deceitful or whatever, knowing that in advance can be crucial to your
success. It also helps you establish who you can trust and helps you
form alliances that can contribute to your success and your
organization’s too.
c. Gossip provides a fast, efficient (and unofficial) communications
network that alerts you to trouble and opportunity both within the
organization and outside. I have found that people don’t like to say
‘no’ to your face and don’t like to give you bad news. Gossip can act
like an early warning system.
Power does not equal position and hierarchy. Instead, true power is proportional to ability.
You should know that there are many people who do not want to be
leaders and they don’t want to be led either. Many people spend a lot of
energy trying to avoid responsibility and covering up their mistakes. I
respect people who will first look in the mirror to see of there is
anything they can do to improve a situation.
You need to be able to communicate well: in public, in meetings, one
on one. You need to be able to communicate clearly and effectively and
to think-on-your-feet. You need to tell the truth, the smart truth.
Always practice and rehearse before a presentation, Verne Chant once
recommended. Think things through.
If you don’t know the answer to a question, say so. Never guess. Say
that you will get back to them on that. Never agree to anything without
giving yourself a chance for a timeout,
Rod Bryden once told me. Say something like: ‘That sounds reasonable,
let me think about it overnight and we’ll get together tomorrrow to
decide.’ Give your subconcious a day to mull it over and you’ll be
surprised at how you can improve things or clarify things that will be
an advatage to both sides.
If you can write well, this is a huge advantage. As my PhD thesis
supervisor told me: “It’s the first million words that are the toughest,
Bruce.” Like most other things, you get better with practice, so
practice!
A Vancouver legal secretary was recently awarded the top prize for
bad writing (Nationa Post July 11, 2001). Here is her introduction to an
imaginary novel:
“A small assortment of astonishingly loud brass instruments raced
each other lustily to the respective ends of their distinct musical
choices as the gates flew open to release a torrent of tawny fur
comprised of angry yapping bullets that nipped at Desdemona’s ankles,
causing her to reflect once again (as blood filled her sneakers and she
fought her way through the panicking crowd) that the annual Running of
the Pomeranians in Licechenstein was a stupid idea.”
Remember to balance out the lows and highs.
Compartmentalize. Your ability to compartmentalize will help you
achieve success more quickly. Successful entrepreneurs like Terry
Matthews of Mitel and Newbridge fame are very good at keeping going even
when they have many, seemingly insurmountable, problems to deal with.
Most people just get overwhelmed and shut down. Don’t feel bad if you
are one of those, most of us have been there.
People who can compartmentalize not only their business but also
their personal lives tend to become more successful more quickly.
As discussed above, if you can get the business model right when you
start out (instead of ten years down the line like most of us), you will
obviously have a better chance of earlier success. This is what the
“overnight’ successful people do: they keep all the balls in the air at
the same time while they are implementing the right b. plan. They are
capable of multi tasking. They are comfortable with ‘controlled chaos’
and insufficient information.
Successful entrepreneurs must be capable of doing everything in
parallel. In real estate, for example, the North American model is to do
everything at once for a new office project: buy the site, rezone it,
design the building, pre-lease it, finance it, even build it while
building permits are pending (not recommended). The European model is an
example of first order thinking and in series: buy the site then design
the building then rezone the site then file for building permits then
build it then lease it (after prior unknowns are removed) then finance
it (after all unknowns are removed). Obviously, the NA model involves
much more risk. On the other hand, the European model is so capital
intensive that only large companies can play.
This leads to an uncompetitive industry, much higher prices for
clients and less flexible markets (25 year lease terms, for example, are
common in Europe and obviously don’t suit NA needs and especially SMEE
requirements.) The NA model is much faster too. And that is a key
difference between an entrepreneurial company and one that is not. Speed
counts.
For tech companies, do not let the engineers strive for perfection;
perfection is not possible. A good product ready on time is better than a
perfect one that is never ready for prime time.
21. Check, Check, Check
There are no ‘fire and forget missiles’ in management. Set goals, follow up and see that you and your staff achieve them.
My Dad, the late Professor OJ Firestone, and I tried to determine
which three things were the most important skills for an entrepreneur to
master:
– SALES SALES SALES (moi)
– CHECK CHECK CHECK (my Dad).
As I have grown older, I have come to realize they are equally
critical: without sales, all organizations will eventually disappear
and, without attention to detail, they will fail to execute and just
wither away.
Here is a Venn Diagram for Dad:
If it’s important, make sure you remember it: CHECK CHECK CHECK everything.
Postscript: Parents have been passing on this advice to children for
generations if you can rely on the film ‘The Godfather (Part 1)’ as a
guide. Near the end of the film, Vito Corleone goes over and over again
possible scenarios with his son, Michael, on how he (Michael) will be
able to recognize the traitor in the family and avoid the trap his
enemies are preparing to spring on him. The Don gives Michael a lecture
on being careful and checking everything, advice that will soon save his
life. When I saw that, it had the ring of truth, at least to me.
22. Pick your Spots
“The best trades you make are the ones you don’t make,” Glen Sather, when he was GM of the Edmonton Oilers.
In the face of overwhelming odds, run.
Out of every 100 deals that come across your desk, reject most or all
of them. When the right one comes along, strike quickly. Carpe diem.
Having said this, entrepreneurs never actually make a final, final
decision about anything. They stay flexible and change their position in
light of new facts as they become available.
There is no ultimate solution in life or business. Life is a series of tests so you never actually get ‘there’.
You need to be able to change and adapt, much as successful organisms
change and adapt to changes in their environment. The entrepreneurial
life is a lot like professional sports: it’s ‘what have you done for me
lately’ from all stakeholders (your shareholders, investors, suppliers,
partners, customers, employees, your family and so forth.)
23. Focus on your Core Competency
Contract out everything else. If it isn’t in the business plan, don’t
do it. Divest everything outside your core competency or simply stop
doing it if you can’t sell it. You need discipline and focus.
You need to be in a niche that is big enough to generate something
bigger than just a J.O.B. for you; that means your niche has to be wider
than you thought and a lot deeper too.
Everything else is just a hobby. Don’t turn your hobbies into a business. You’ll hate yourself in the morning.
The differnece between a J.O.B. (aka, Journey of the Broke) business
and an entrepreneurial company is that the latter creates value that is
independent of the Founder. Make sure you’re in that space.
In operations that don’t form part of your core competencies, costs
always rise to exceed revenues. (It is kind of like your personal
income, you always seem to spend more than you make no matter how much
you make.)
That is why you need to contract these types of things out to
companies that specialize in that area, who know how to control costs,
who know how to make a little bit of money over a large base of
transactions. Payroll management, arena management, parking lot
operation, security services, cleaning services, routine manufacturing
come to mind.
Profitability is a key to success; not so you can go spend time on a
beach but so you can reinvest in your core business to make it stronger
and better. Profitability is power. It is independence from the bank and
creditors; it is power to grow the reach of your business to do the
insanely great things you have in your b. plan.
With the National Hockey League’s Ottawa Senators, core competencies
included a) managing key commecial relationships (season ticket holders,
sponsors, suite lessees, signage, concert and event promotion, junior
fan club, ticket selling) and b) the management of hockey operations:
putting a winning product on the ice. Everything else was contracted
out- radio rights, TV rights, parking, F & B, security, cleaning,
arena management, catering. Note that web rights were kept in-house as a
key to managing commercial relationships.
Anything that is not in your core competency should be contracted out
or you should fold it and stop doing it or you should sell the
division. It is surprising that even very small businesses have within
them projects or divisions, products or services that can be sold to a
third party. You can add by subtracting (get rid of loss making products
or services, allow your people to focus on what they do best and your
costs will drop, your revenues or margins will increase and your bottom
line will grow). Also, somewhat surprisingly, you can often sell these
unwanted divisions, product lines, services and businesses at a profit:
what you don’t want may have value (sometimes a lot of value) to someone
else who can make better use of your asset; you can turn a liability
into an asset this way.
Mergers, acquisitions and divestitures can form a big part of your
success. You have to make the other party feel that they have won a hard
fought battle so even if you are happy with the first offer, haggle a
bit- make a counter offer. But don’t be greedy and never look back:
don’t worry if you left a little too much on the table; life has a funny
way of rewarding you.
Clients who feel they did particularily well in their dealings with
you will often come back themselves or refer someone else to you- your
sales volume will be higher than it otherwise would have been.
Finding out what your core competencies are, requires:
Strategic Issues:
a. Define the industry. Are you creating a J.O.B. or is it scalable?
b. How can you grow the business?
c. What is your exit startegy?
d. What is your business model?
e. Are you partnering with other individuals or with a strategic (corporate) partner?
f. How can you reduce complexity?
g. Examine the strengths and weaknesses of your team. Focus on the strengths.
h. What parts of the business are creating positive cashflow?
i. What parts are growing fastest?
j. Which parts do you enjoy dealing with the most, the least?
k. Which cities or locations are doing best?
l. Is your industry one where all boats are rising?
m. Do you have any divisions in slow growth sectors?
Tactical Issues:
a. Are you having problems with HR acquisition and training and where?
b. Can you grow the people in the business or do you have to hire from outside?
c. Are you doing any guerrilla marketing or bootstrap financing?
d. If you had to fire 10% of your workers, who and where would that be?
e. Do you have trouble attracting investment capital (bank debt, mortgage debt, fixed asset financing, equity, ..)?
f. can you contract out any operations currently done in-house?
g. What role does creativity, design and utility patents play in your business model?
24. Don’t fear Competition
I wasn’t going to put anything in here about competition because I have a different view about competition—I like it.
When one of my colleagues would come running into my office to tell
me in a breathless, somewhat frightened voice that one of our large
competitors was going to build a competing office tower right next to
one of ours, I was secretly glad because I knew that: a. they did more
marketing than we did, b. at least a third of the clients they brought
to their site would walk across the street and check us out, c. by
entering the market in this location, they were confirming what we
already knew but the media and the public didn’t: that this was a good
choice for tenants, d. we were smaller and could move faster. (For
instance, way back in 1982, we purchased a dozen or so of these new
fangled things called Personal Computers from Apple (they were Macs) and
we could turn around a lease document with these in about a day. Our
competitors, who were still using typing pools (although some had word
processing pools), took six to eight weeks to get an Offer to a
prospective client.)
I mean there has to be a reason why fast food emporiums and gas
stations locate in close proximity. Could it be that there is some kind
of synergy happening, that the market gets bigger and there is more pie
for everyone as consumers’ learned behaviour changes as they recognize
this or that location as best for their purposes?
Terry Matthews has stated that he is glad he started most of his
businesses before the web became the ubiquitous source for information
about competitors that it is today. It is darned intimidating to think
you have a great new business model, only to find out that there are a
couple of others out there already operating with a great looking web
site to boot. But
Terry’s comment might be: “So what?” And he would be right. It
doesn’t matter that there is competition. In the first place, if you
think of an idea that no one has ever thought about before, maybe it
isn’t such a good idea. Maybe there is a reason why no one has thought
of it before because maybe they had, and it is a bad idea. And if it is a
good idea, why, you’re going to have competition anyway as soon as
people do a google search and find you.
I think there are only two things you need to worry about with your
competition: a. is this market big enough to support more than one
entrant, and b. can I execute the business model so I can compete?
Sometimes the answer is ‘no’: at the end of the 1980s, real estate
became a game for the big to play– penfunds, banks, insurance companies,
publicly traded companies, all had access to capital at a cost which
was less than a third the cost to smaller businesses. On a $10m project,
this meant a head start of almost $1m per year in terms of cashflow and
there was no way, SMEs could overcome that type of lead with clever
marketing, fast response times, lean operations or anything else that
entrepreneurial companies tend to do. It was over.
So most entrepreneurs in real estate went out of business (or at
least out of the business of building large office or retail projects).
They had to go into markets where they did not compete with large
institutional money– home building, mini offices, public storage, NHL
Hockey (aka, the Ottawa Senators and the Corel Centre), whatever,
wherever the huge, elephant-size players aren’t. Here is a political
cartoon I drew that kind of reflects my view of how Banks and large
enterprises view competition from SMEs– they don’t want you to succeed.
Why would they? You might steal away some of their customers. As Jerry
McGuire said: “We live in a tough, competitive world.”
Having said this, you’ll notice that by moving out of large projects
and into market niches, entrepreneurs in real estate did not rid
themselves of competitors at all. It just was that in these niche
markets (which are still big enough to create great businesses, btw),
they faced competitors who were more their size and the playing field
was a bit more level.
Even in the NHL business, which is a legal monopoly (the NHL grants
exclusive domain to operate a franchise within the City limits plus 50
miles or as otherwise provided for in the Franchise Agreement), you face
terrific competition for the entertainment dollar from other
professional, college and amateur sports as well as a huge menu of
entertainment choices that the consumer now has.
25. There are no Rules in Entrepreneurship
One of the hardest things for my students to learn is that there are
no rules in the field of entrepreneurship. By that I don’t mean that you
go outside the Law; I am not talking about those kinds of rules. You
always obey the Law and protect your reputation; the latter is the most
important thing you own BTW.
But how many times have you heard: ‘We don’t do it that way because
it isn’t done like that and, anyway, no one else does it that way
either’? Entrepreneurs are constantly asking BIG questions and thinking
of ways to do things differently. It is usually this kind of creativity
in EXECUTION that creates the most value for entrepreneurs. Fred Smith’s
brilliant insight that he could develop an overnight package service
(Fed/Ex) by reducing a 50 by 50 matrix of origins and destinations (with
its impossible requirement for 2,500 overnight flights) to a handful of
flights by developing a hub and spoke system was responsible for one of
the great startup success stories of the late 20th Century.
Let me give you another example.
Gino Rossetti from Detroit asked the owners of the Detroit Pistons on
a visit to Joe Louis Arena: ‘How come the people who pay the most
(i.e., suite holders) are the furthest away from the floor?’ Joe Louis
only has one ring of suites, which are located at the nosebleed level.
The answer was that all arenas are built that way; it’s just the way
it’s done. Gino whipped out his sketch pad and said: ‘What if we had two
lower rings of suites– the first one just 12 rows from the action on
the court?’ That single insight revolutionized arena design and
economics. It not only increased the number of suites in these
buildings, but people also paid more (a lot more) for private suites
close to the floor or ice surface. Plus it gave the ownership committed
revenues (because they signed 5 and 10 year deals with leaseholders) and
it gave them the ability to finance new arenas on a commercial basis.
Additionally, it created the opportunity to bring all the seat holders
closer to the action because the balconies created by the lower rings of
suites could be stacked closer to the arena level much as in an Opera
House with rings of private boxes.
Less volume in the building creates a less expensive but more
intimate structure which beneifts not only the fans of major league
sports but concert goers too. So Gino gave the world not only a much
higher revenue-generating sports facility but there a qualitative
improvement too.
Students often ask me how prices for new products or services are
arrived at. They seem to feel that there is some form of government
control or other, officially approved, algorithm that generates a price.
I tell them the story of Butch Cassidy (in the film BUTCH CASSIDY AND
THE SUNDANCE KID) when he was challenged for the leadership of the gang
in a knife fight. Butch says: “Before we fight, I have to explain the
rules.” His opponent, a giant of a man, says: ‘Rules, in a KNIFE FIGHT?’
Butch then walks up to him and kicks him in a vulnerable spot and then
stomps him into the ground saying; “Rules? There are no rules in a knife
fight.’
Pricing is a bit like that. In a competitive markplace, you can charge whatever you like.
It may be above your cost (often way above, in, say, the marketplace
for baseball players), at your cost or even below cost (these are called
loss-leaders; e.g., selling below cost milk to get folks into your
supermarket. Ever notice how the milk is always furthest from the door
in every store– that’s to get you to impulse buy when you are walking
through the facility.)
Rules? There are no rules in entrepreneurship; you get to make up
your own. You just have to hope the set of rules you choose, works;
i.e., they underpin a viable business model.
Prof Bruce
Prof Bruce @ 7:47 am
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CGI—Big Company, Small Attitude
Posted on
Tuesday 10 January 2012
(This article originally appeared in Ottawa Business Journal, Jan. 9, 2012: https://www.obj.ca/Opinion/Bruce-Firestone-5444)
You expect a company with 31,000 employees and revenues of $4.32
billion in fiscal year 2011 which make it the seventh largest systems
integrator in the world to have a big attitude. But meeting with tall,
fit 40-something Scott Lawrence suggests a different story—a place where
they want to stay humble / stay hungry and remain open to new ideas.
Mr. Lawrence has been an IT guy since the day someone at Bell Canada
asked him what they could do with a huge document cache made up of micro
fiche files. He suggested they turn it into computer-readable records
and since no one knew how to do that back then including Scott, he got
the job since he was the one to suggest it. Looking back, his London
Ontario Fanshawe College background in philosophy and law was hardly the
ideal undergrad degree but, whatever, he’s been an IT guy ever since
until, that is, he decided to take six months and sail off in his
refurbished 1980s 48-foot Taiwanese Trawler named ‘Reviresco’ which is a
clan motto meaning to ‘grow young again.’
He took 3-stateroom Reviresco and a tired Scott and his spouse away
from corporate life to find new purpose. At the end of the trip, he knew
he did not want to return to a career of corporate consulting even
though he’d been running a $100 million practice with 700 people,
especially because he’d been running a $100 million practice with 700
people.
His timing was impeccable though—CGI like many tech companies are
blurring lines between being a services company, a hardware one, a
software house, an outsourcing resource for third party clients or a
product biz. Scott wanted products and CGI did too. In fact, an
opportunity had arisen to buy the assets of a then bankrupt Sault Ste
Marie software company and create a CGI-branded product which is called
SuitCASE.
CGI wouldn’t disclose the purchase price of SuitCASE but it probably
wasn’t much, buying it as they did from a receiver. They bought it just
for its IP.
CGI is a company that has acquired more than 60 organizations, large
and small, over the last 35 years since its inception. They’re
opportunistic and their strategy makes sense. Like many other large
organizations, they can afford to wait on the sidelines and just look
over the fence waiting for the tallest poppy to appear. Letting
entrepreneurs experiment using a process of trial and error then picking
off the fastest growing ones (by buying them outright) or the ones that
fail but have promising IP like this one, is a smart play.
SuitCASE is a case management system—government departments, NGOs and
large firms are all potential clients for a workflow automation
software application. Take for instance a Human Rights Tribunal. Once
they get a complaint, what do they do with it? Each complaint is called a
transaction (or case) and they open a file. It then goes through an
incredibly complex process until it is mediated, adjudicated or
otherwise resolved. Even then the case may not be at an end since there
can be follow up required and further monitoring afterwards as well.
Paper-based file management is not just inefficient; it can also be
ineffective—enter SuitCASE.
Grievance filing, license applications, pension applications,
permitting, grant applications, there are many potential uses for a
software app that can track, speed up and manage complex processes.
Another industry I suggest they consider—Big Pharma. Drug approval in
North America has become mind bogglingly complex and we all have a stake
in improving that. And then there is the mother-of-them-all, the court
system, the ultimate in antiquated case management, to conquer.
CGI already works with 95 government agencies, departments and crown
corporations, so they feel confident that they can leverage their
existing client base and sell lots of SuitCASEs. Three clients are now
actively using it and, if you have three, you probably have a real
business since you might be able to fool one client into something,
maybe two but in all likelihood not three. Clients pay licensing,
integration and set up, maintenance and support fees. Upgrades are free
and they get comprehensive support.
Mr. Lawrence is a boyish-looking, happy guy these days—instead of
telling his employees (oops, CGI actually calls their staff ‘members’ to
reinforce the idea that they are all on the same side) to do stuff,
he’s in the trenches with just nine other people doing things like
selling directly to clients. Even for a deep pocketed company like CGI,
they understand the importance of getting launch clients and building
real revenues and real cashflow.
Professor Bruce M. Firestone, Entrepreneur-in-Residence, Telfer
School of Management, University of Ottawa; Founder, Ottawa Senators;
Executive Director, Exploriem.org; Broker, Century 21 Explorer Realty.
Blog: www.eqjournal.org Twitter:www.Twitter.com/ProfBruce
Prof Bruce @ 8:46 am
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Excerpt from Quantum Entity: BlackFern Group
Posted on
Saturday 24 December 2011
(Elmira College marcom graduate Ellen Brooks invites a
group of Quantum Entities and their kids to visit a specially equipped
room at Quantum Computing Corp’s marketing agency, BlackFern Group in
Toronto, to test and analyze QE-child interactions before beta QEs are
released to the general public. If you have not already done so, please
take a few minutes to pre-read the Foreword from Quantum Entity: https://www.eqjournal.org/?p=2932.)
From Chapter 6 The Big Smoke
Fabulous Ellen Brooks
Two weeks ago, Ellen invited a group of kids to come in with their
QEs to a specially equipped room at their marketing agency, BlackFern
Group, a room where they can observe, record and analyze how these
interactions are developing. Test results are amazing.
The kids relate to their QEs as if they are kindly aunties or uncles,
asking for help with puzzles, words, spelling, reading, writing and
arithmetic, proudly showing off newly learned skills like summersaults
and cartwheels, demanding praise, even taking direction and reprimands
from their QEs too. They ask their QEs to adjudicate fights when they
argue with other kids over who gets to play with what toy when or whose
turn it is on one of the climbing structures. The kids even race their
QEs (who conveniently sprout fast-moving skinny legs and big, floppy
cartoonish feet) around the room, which is curious because QEs have
infinite speed since they can be in every state at any one time.
Nevertheless, races prove interesting since QEs push their kids hard
enough for them to get a great workout while still letting them be
competitive. They even try organizing a relay race but this just
degenerates into a pell-mell circular mêlée of kids and QEs running
first clockwise and then, at some unknown signal, counter clockwise
around the room.
Ellen, even though she is alone while watching all this unfold,
bursts out laughing when she sees a teensy girl leaning against a media
wall, her face centimeters from her QE and they’re both panting. A QE
with her long tongue hanging out of her mouth and large expressive eyes,
congratulating her kididily on a race well run is something to behold.
QE faces are becoming more expressive by the day. This one is kind of
stooped over as if exhausted from the race with the edges of her
saucer-shaped face curling in and down reflecting the posture and state
of her little girl. QEs are acquiring more dimensionality for sure.
They also play dueling pistols, video games, dance-move games, mirror
games, wobbly body and dozens, maybe hundreds, of other variants with
their kids. It’s bewildering to watch.
If their kid has a favourite story, video, animation or song, their
Quantum Counterpart reads it to them or shows it to them or plays it for
them, over and over again as requested no matter how many times their
kids ask which is what children are wont to do anyway. QEs never get
tired, never get cross, never have other things they’ve got to do and,
Ellen thinks, they appear to enjoy watching ‘their’ kids grow, change
and develop, since she supposes, they are experiencing a lot of the same
stuff, albeit at warp speed.
It looks completely natural and it’s weird. QEs scale in an
interesting way—when talking to just one child, they’ll appear quite
small—just a head with skinny arms and legs conversing quietly almost
tête-à-tête, forcing the kid to come closer. When reading to a larger
audience, they look more like a giant Humpty Dumpty—big headed and long
armed, turning pages quite elaborately emulating, perhaps, the speech
patterns of noted Stratford player Richard Blanforth.
They’ll invite children, one at a time, to come up and touch the
media wall to feel the coarseness of Big Bad Wolf’s fur or velvety
softness of Red Riding’s Hood. They’ll add cool background sounds and
lighting effects too—QEs can talk and produce a ‘show’ at the same time.
Ellen has never seen anything like it and frankly no one else has
either. The kids, of course, don’t know that, don’t care and take to it,
famously. Ellen sees an echo of Damien’s sound engineering background
somewhere in all this.
She’s also introduced Bananas into the mix—it’ll please
Damien since it’s a game his grandfather invented years ago to teach him
the power of positive and negative numbers. Kids stand and QEs resolve
on numbered squares that appear on the media wall floor beneath them.
Each player takes turns clapping their hands and a pair of large dice
that have materialized on the media wall at the far end of the room
roll. If a die is a 1, 2 or 3, you have to go backwards. A 4, 5 or 6
means you move forward. If you land on a square where another player is,
he or she (human or non-human) have to go back to the beginning!
Kids learn fast that a negative number isn’t always bad since if your
QE opponent is one square behind you and you roll a 1 and, say, a 5,
you use the 1 first to move backwards and chase your QE all the way back
home before you move forward 5 squares. So there is strategy as well as
luck involved. Rolling doubles means you get another turn and there are
some squares which have appeared that are ‘painted’ with an
evil-looking face so, if you land there, you miss a turn. Again, how you
use your die rolls (in what order) can make a difference.
Finally, Pops introduced characters into his game (you choose who you
want to be from a list of different species of apes) and there are
shortcuts (vines) that you can swing on so sometimes rolling a negative
number and having to go backwards is not a bad thing since, if it leads
you to where one of the vines starts, you can swing across and actually
end up ahead of where you started.
QEs also do dressup as pretend-apes and, sometimes, if their kid is
about to miss an opportunity to knock them off or otherwise make a wrong
move, they’ll give her or him a bit of a hint by wiggling, fidgeting or
vibrating or by rapidly blinking, winking or pulsing. First sentient
being to the end of the room (the prize is a virtual hand of purple
bananas, hence the game’s name), wins. A few tables with real bananas
(yellow ones which North Americans are more familiar with than the ones
from PNG that Pops rendered in his game), other fruits and some juices
have been set up in an alcove off to the side at the far end of the room
for everyone to enjoy after the game is over. It’ll be up to QEs to
supervise kids’ snack time since there are no other ‘adults’ permitted
inside this experiment they’re running.
One game where kids seem to have found that they have the upper hand,
where they can regularly and legitimately beat their Quantum
Counterparts is: Rock/Paper/Scissors. QEs cannot seem to read subtle
signs of intention—they are having some difficulty with instinctual
emotions (those stemming from the more primitive part of the brain—from
the amygdala) like anger, disgust, humour or contempt. They do better
with cognitive emotions (from the prefrontal cortex) like behavioral
inhibition, judgment, evaluation, meaning, inspiration, beauty and
falsehood or truth.
She can see that they are trying to evolve a workaround for the
former using a reference engine so that, for example, they’ll be able to
‘get’ that a man slipping on a banana peel is funny because, basically,
they have millions of examples to draw from. But Ellen isn’t sure
whether any QE will ever headline the now more than 50 years old
Just-For-Laughs Festival in Montréal and dazzle audiences there with new
original material.
Right now, it’s just a hoot for Ellen to see a little kid’s two
fingered scissors cutting up ‘Humpty Dumpty’s’ five fingered paper hand.
Within a year, QEs will be playing a big role in early childhood
education and become especially important to kids with learning
disabilities and autistic children who’ll need just a few simple
gestures from QEs to improve their ability to relate to a wider world
but she doesn’t know any of that yet.
What Ellen, who is watching all this unfold on her media wall from an
adjacent room, does know, in a fundamental way that no one else
possibly can, not even Damien or Traian, who have not personally
witnessed or seen the record of the last two hours is that QCC has a
huge hit on their hands. She knows it for a CERTAINTY because her head,
her heart and her gut are now all in alignment on this.
…
Quantum Entity Cover Art by Janak Alford
Prof Bruce
Copyright. All rights reserved. 2011.
Postscript: From Author’s Note
If you would like to teach your kids the power of positive and
negative numbers using the game Bananas I describe in the book, it
exists. It’s a free online utility you can find at: https://dramatispersonae.org/SmartyPantsGames/bananas.swf. It’s quite safe to download and play.
Bananas Board
It’s a game I invented about 15 years ago to teach our five kids
simple arithmetic and board game strategy. Thanks to Richard Isaac from
RealDecoy.com for, all those years ago, coding it. I’m looking forward
to the day when media walls are at the point I describe in the book and
can bring games from virtual to RL. We’re getting close.
About Quantum Entity, first book in a trilogy*:
1. About the Author: https://www.eqjournal.org/?p=3030.
2. Excerpt from Quantum Entity: ‘Worry Dolls’, https://www.eqjournal.org/?p=2939.
3. Miss Buril: https://www.eqjournal.org/?p=2911.
4. Artpreneur Schedule: https://www.eqjournal.org/?p=2702.
5. ‘Siberian Cedar Medallion’: https://www.eqjournal.org/?p=2694.
6. Pine Nut Medallions: https://www.eqjournal.org/?p=2130.
7. Update: https://www.eqjournal.org/?p=2685.
8. Foreword from Quantum Entity: https://www.eqjournal.org/?p=2932.
9. Excerpt from Quantum Entity: BlackFern Group, https://www.eqjournal.org/?p=3076.
(* Book 2 is American Spring. Book 3, The Successors.)
Prof Bruce @ 4:43 am
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Building Your Newsletter List
Posted on
Thursday 22 December 2011
Managing Your List/Creating Interesting Content using Co-branding/Tracking Metrics
Recently, former student and now marketing director of fast-growing
selectstartstudios.com Jennifer Butson asked my advice on how to get
their newsletter off the ground. Currently, they have about 30
subscribers but need somewhere around 200. Here’s what Jen had to say:
“We’re trying to build up our newsletter for s3—Adam (one of their
three Founders, Adam McNamara, another former student, Ed.) says we need
200 subscribers to do it. Now we’re at 30. Ugh. I was wondering if you
had tips to build up our list… Exploriem.org’s seems to be very popular!
I’ve been running ads on LinkedIn but they haven’t yielded a lot of
results.
We’re trying to get senior/executive level subscribers—essentially potential clients.
I need your help oh wise one, Jen.”
I think Jennifer’s last comment is included because she thinks of me
as older than Yoda and what she really meant to type was: ‘old wise
one.’
Well, first let me deal with the nature of a newsletter then how to build a subscriber base.
Here’s what a newsletter is NOT:
1. A selling tool.
2. A substitute for a sales process.
When you meet someone who has a biz card that says ‘VP, Marketing and
Sales’, you’ve just met someone who doesn’t know what they are doing.
Marketing is all about building up the brand which builds trust which
allows a separate sales process to take place that results in actual sales because people like to buy from people they like and trust.
Here’s what a newsletter is:
1. A mechanism to create a learning community.
2. Repeat point no. 1: a mechanism to create a learning community.
That is all.
It’s no different from social media or, more accurately, social media
is no different from an old fashioned newsletter sent out by post—like
the old Sears catalogue was. People would wait all year for that dear
old, humongously thick thing and folks would gather round and wonder at
all the new ingenious inventions, see what was hot in Paris fashion
(umm, the previous season) and talk amongst themselves about what they
could and could not afford, the latter being in some ways more
interesting than the former. What can be hotter than the unattainable?
Then they could write away to that distant organization and expect to
reliably get stuff back by post or coach and more wondrous
communication from an exotic, far off (in terms of time but perhaps not
distant) place like…Chicago. Wow.
So whatever it is you think you’re selling, fuggedaboudit. Talk to
and with people in an authentic way to build your community. It’s like
21st Century biz modeling—if it’s all about the money, you’ll have none.
If it’s all about building insanely great products and services and
building/giving back to your community, you’ll have lots.
Our Exploriem.org newsletter is about
educating/communicating/receiving feedback/spreading the news/hearing
the news/learning/teaching/… understanding. We’re trying to create a
feeling that you’re part of something bigger than yourself.
OK, so how do you build your newsletter list, an important marketing
channel/community builder and integrator? NOT by pushing on a string.
LinkedIn ads aren’t working for Jen. FB ads won’t work either. Mass
emails—horrible.
Here’s the secret. You just ask them, one by one. When we sold PRNs
back in the day (these were Priority Registration Numbers that people
could buy for $25 each which made them eligible to buy Sens season
tickets when and if we were able to BRING BACK THE SENATORS which we
actually did on December 6th, 1990), we sold them two by two (no one
buys a single season ticket) at bars, in meetings, on the phone. One of
our guys, Jim Steel (now head of Ottawa Senators broadcasting) got into a
late night telephone argument with a friend of his, got up, got
dressed, went down to the pub, won the argument and came back home with
$50 for two PRNs. That’s how you populate your newsletter list or your
new app or your new website… using ‘shoe leather’.
So this is what I wrote back to Jennifer:
“Hey, Jen, we have about 5,600 people on our newsletter list. Here’s what you could do starting today:
PERSONALLY ask someone really senior at your clients,
suppliers, clients’ clients and suppliers’ suppliers to take around a
paper form (I’m not kidding) for people to sign up with their names,
email addresses and signatures for your newsletter.
All these people owe you something! When I was with the Sens and saw
say a plumber fixing a pipe in one of our buildings, I’d ask: “Is that
guy a season ticket holder?” I mean shouldn’t someone who sells to you
also buy from you and be on your newsletter list? Think that only
applies to your suppliers? Think again. Your clients need you, they want
you to stick around to supply them with more cool products and services
for years. So every time you find another client is good for them– it
means your longterm viability is improving and, voila, another customer
for you means another opportunity for you to learn new things so you can
improve your products and innovate some more which, of course, benefits
all your clients, right?
The other thing that comes out of all of this is the opportunity for
your clients to learn from each other (same thing for your suppliers). I
call this cross-talk. Once everyone is talking to everyone (i.e., it’s
become a true networked community not just someone talking to you then
you talk to someone else about their question and then take the answer
back to the first party only to be asked for a clarification…), you’ve
got a learning ecosystem in place that is very resourceful and,
interestingly, very hard to knock off. This is why I think Twitter with
its hashtag conversations (which generate a lot of cross talk and were a
user-driven innovation– for example, I’ve been using hashtags in some
of my primordial websites since 1992) will, of all the SM out there, be
really difficult to dislodge.
Anyway, I would make that piece of paper interesting with a cool story on s3 like the one I wrote about you:
S3 Growing at Exponential Rate, https://www.eqjournal.org/?p=2818.
Also, put a photo of you guys on this sheet of paper (people still
like to see people!) plus a Qricket Code so they can scan it in and go
somewhere cool like the video I did with Tariq (Tariq Zaid, another one
of s3’s Founders, Ed.): https://www.youtube.com/watch?v=JsbGUBsZ0I8&feature=player_embedded.
DON’T PUSH ON A STRING. Be proactive. This’ll get you a minimum of 300 signed up.
Next, with every email contact you make, send them a one on one email
back, asking them if you can sign them up for your newsletter.
THAT’S EVERYONE IN YOUR COMPANY DOING THAT FOREVER.
This will get you to 1,000 signed up in two years.
OK?”
Andrew Draper at Manpacks.com told me that in some ways an email
address (voluntarily given) is more valuable than cash. I think what he
meant by that is that clients and customers, by agreeing to provide you
with their contact info/profiles/what have you, are agreeing to be part
of your community and that is more valuable than cash. I agree*.
That is all.
Prof Bruce
* In an article titled, What is Your Email Address Book Worth? (see: https://www.eqjournal.org/?p=2754),
I estimated that each email address is possibly worth ten bucks so
Exploriem.org’s newsletter list is notionally worth $56,000. Of course,
you can’t really sell it (our list would have practically no value to
say someone selling ED drugs since I assume that most of the student
entrepreneurs on our list wouldn’t exactly be in the market for stuff
like that) but you could look at it another way—what would people have
to pay Exploriem.org to stop mailing folks? It’d be a lot more than $56,000 I suspect. Might as well say: STOP THE MISSION.
Postscript: To show you how smart Butson is, she promptly wrote back
and asked me if I would personally take around a piece of paper at our
shop and get some folks signed up for them! I agreed.
Postscript 2: You should also use a contact management system once
you get over even a very small number of subscribers. IMHO, I would do
this at 50 and up. These providers have safe unsubscribe, Facebook and
Twitter integration, contact import/export and many other functions
built-in and don’t cost very much (we pay about $75 a month for the
service we use at Exploriem.org which will allows us up to 7,000 names
in our contact folder). They can also help prevent you from getting
black-holed by random ISPs who may wrongly mistake you for a spammer and
turn their spam filters on either blocking you entirely or sending all
your mail to separate spam files.
Also, don’t send your newsletter out as a PDF and say ‘See attached’.
Practically no one will open the thing. What’s worse than this? ‘Click
on the link below to see our latest newsletter!’
We do ours in html (this blog is also written in html) so it can show
pictures, run videos (folks really like those videos– these get opened
practically more than anything else in our newsletter) and be eminently
searchable and indexed by Goog et al. (Hey, don’t worry, you don’t need
to know html to build one. If you are using a service provider like
ours, it’s trivial to do it.)
Out of 5,600 we send out each month, anywhere from 1,000 to 1,700
actually get opened which is a very good result. It means we are getting
traction and the community is finding utility in what we do. If you get
open rates of .5% to 3% (which many newsletters do), this is BAD. It’s
better than what spammers get but not a whole lot. Your goal should be
at least 10% and if you can get to 20% or 30%, brava/bravo.
Our provider gives us not only lots of tools but metrics as well so
we KNOW what people are opening, looking at, reading, listening to or
viewing. This helps you make your newsletter better each month. And
please don’t send it out more than once per month! No one wants to hear
from you every week!
Organizations that set goals and track metrics grow 7x (!) faster
than those that don’t according to a Silicon Valley study released in
May 2011 (Startup Genome Report 01, Max Marmer, Bjoern Lasse Herrmann,
Ron Berman, 2011: https://www.eqjournal.org/Startup_Genome_Report.pdf).
Do a decent job on branding your newsletter. Remember, brand builds
trust and it’s trust that leads to sales. Give it a name. Not ‘Great
News from and about Select Start Studios’ but maybe something like ‘How
to Build Insanely Great Mobile Apps’…
Invite third party content. We get a tonne of stuff from people in
our ecosystem. 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 you with more cool content, they become ambassadors for
your newsletter– they have a stake in it and a stake in getting more
readers for it. This is a form of co-branding and there absolutely needs
to be more of it because it provides big leverage for both. Basically,
it introduces S3′s entire ecosystem to their suppliers’, clients’ and
partners’ separate but overlapping ecosystems that will almost never be
entirely either one or the other.
No matter what you do to build your newsletter list, you will get
complaints. People will write to you and say terrible things about you
and your family for ten generations. They may forget that they
previously agreed to be on your newsletter list or someone at their
organization may have said: “I’m sure Derek would want to get this
awesome newsletter from S3. He’ll be so pleased that I took the
initiative and saved him the time by subscribing him!”
If this happens, DON’T OVER REACT. Just take Derek off the list
FOREVER and apologize. End the story. We get one or two of those a month
(out of 5,600) so it is what it is.
(Somewhat surprisingly, people like Derek do sometimes come back a
while later and say: “Hey I didn’t mean what I said about your mother, I
actually do need to see your newsletter after all (my boss told me to)
so can I please get back on your distribution list?” Even if they say
‘pretty please’ we don’t do it. You insult my mother, you’re done!)
Last point, I promise: save your newsletters in a searchable archive.
Make them easily available to all and, Heaven forbid, don’t put them
behind a paywall like the NYT does, or charge for them like Harvard does
or password protect them like CU used to ask me to do in the early
1990s. (I did it for a year and then when the Administration was not
looking, I took the walled garden down.) Information wants to be free in
my view and you make MORE money not less when it is.
Comment from Manpacks.com co-founder Andrew Draper:
Thanks for including me, Prof Bruce!
We’ve been having some great success with our email strategy as of
late. Basically, we’re doing a few different things at the moment:
1. When we add product, one of us tries it and reports back about it,
then we create a blog post/email newsletter about it and usually offer
some sort of small discount and easy way to add it to your next order
which we call ‘pack’.
2. We make special offers to existing customers, not really a
‘daily deal’ per se. For instance this Christmas we ran with this
offer: get a $25 credit in your account and give a $25 gift certificate
to a friend—but your cost is only $20. I believe we had around an 18%
conversion rate on total emails sent which is phenomenal.
3. We provide special incentives to non-customers who have given us
their email address (whether for our newsletter or they’ve partially
completed an order or entered a contest, etc). These are usually quite
different from the above, things like overall discounts.
Off the top of my head that’s the gist of what we’re currently doing.
Merry Xmas/Happy New Year’s to you guys too,
Andrew
Ottawa, Canada December 2011
Prof Bruce @ 6:48 pm
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Why You Can’t out-Amazon, Amazon
Posted on
Wednesday 21 December 2011
Also: how the addition of a GIS layer to Amazon’s Price Check turns it into a bookstore-killer app.
In Wal-Mart’s HQ in Bentonville, Arkansas there are signs that say:
‘You can’t out-Amazon, Amazon’ and if Wal-Mart can’t do it, you and I
probably can’t either. Amazon’s incredible inventory of products and
services, its unmatched delivery of both, its fantastic daily data haul
and corporate intelligence derived from its vast relational data base,
make it a formidable competitor.
In July 2009, just after Amazon CEO, Jeff Bezos had inked a deal to
buy wacky shoe e-tailer, Zappos, from Tony Hsieh (Mr. Delivering
Happiness, see: https://www.eqjournal.org/?p=973
for a review of his NYT best-selling book), he recorded a video on the
transaction in which Jeff modestly says he knows just five things. I
recently re-watched it and could only find four but I interpolated on
his remarks to come up with five. Here is what Jeff is recommending to
entrepreneurs everywhere:
1. Obsess over your customers.
2. Invent on behalf of your customers / you can innovate your way out of any box (as long as you have belief that you can).
3. Think longterm (if you really mean it when you say you put
customers first). Amazon is both patient and stubborn: initiatives often
take five to seven years to pay off for them even if they pay off right
away for their customers.
4. Develop a unique corporate culture / brand focused on excellence and customer service.
5. It’s always Day 1 (there’s always more invention in the future,
more customer innovation, new ways to obsess over customers, find them /
discover them / develop them).
Here is his video:
Recently, Amazon introduced a tweak to their biz model which looks
pretty minor but I suspect will have major repercussions especially for
their competitors both online and in RL, Real Life. They do this kind of
biz model innovation a lot and it works so I would probably have added a
sixth point to Jeff’s list above:
6. Innovate not just in products and services but your biz model too**.
OK, here’s how their latest modification works:
It’s called Price Check. They offer a 5% discount to anyone who uses
their new mobile app (of the same name) that let’s you scan barcodes in
RL stores and see what Amazon is charging for that product. So let’s say
you are going to buy Prof Bruce’s new novel, Quantum Entity*, (don’t
try this yet– it won’t be available until June 2012) and it’ll cost you
$15 in the bookstore but you scan in the barcode and Price Check tells
you it’s available for $12.99 from Amazon or $9.99 as an e-book. Wow,
you think, what a deal! Plus you get a 5% discount!
But this is where Price Check becomes much more interesting. It
obviously asks you if you would like to buy it NOW from Amazon where, of
course, it already has your profile and remembers your credit info so
it knows where to send the book and how you prefer to pay for it. It’ll
also use Amazon’s vast relational data base to ask you: ‘Would you like
to see what other people who bought Quantum Entity also bought?’ It was
this question (another earlier crucial tweak to their biz model) that
almost singlehandedly saved Amazon by significantly increasing average
order size. It worked because customers found it to be a useful way to
discover new things and learn from other smart people within what became
and is evolving to become an enormous community of book-loving
/ music-adoring / video-watching / consuming people. But the most
important innovation that Price Check brings is the next question:
‘Would you like as much as $5 off on three qualifying products which
you’ll receive if you enter the price this store is charging.’
Now this throwaway line is the real purpose behind Price Check I
suspect. Sure, it’s nice that Amazon can get a few more orders by
developing a new marketing channel but far, far more important is
turning millions of consumers into secret shoppers and adding
unimaginable value to Amazon’s data base. Think about it– this is an
opportunity for Amazon to go after profit maximization by adjusting its
pricing in close to real time based on competitive market intelligence
produced by an army of secret shoppers who provide their services for
FREE.
Let’s walk through a scenario. What if one of Amazon’s secret
shoppers scans in the barcode for Quantum Entity at another store and
then reports the price there is $11.99 which beats Amazon’s $12.99 even
with a 5% discount. The $9.99 price doesn’t work either because this
consumer doesn’t own a Kindle or a compatible e-reader or maybe they
just want to read a RL book.
OK, so now Amazon doesn’t get that sale. No big deal. But let’s
assume that when the consumer downloaded Amazon’s Price Check app in the
first place, s/he also agreed during its installation to turn on their
Smart Phone’s GIS (Graphical Information System– its GPS-based data)
overlay and allows the app to access that. So Amazon knows that there is
a RL store that is offering the book at $1 less than their offer plus
they know where it is. So the next time they get an inquiry
from that specific location about the price for Quantum Entity, they
show a price of $11.50 instead. However, anyone in the first store will
still see a price of $12.99. That, my friend, is profit maximization
through variable pricing (changed with respect to both time and
geography) and it’s a bookstore killer-app.
Prof Bruce
* Here are a few previews for my upcoming novel, Quantum Entity, first book of a new trilogy:
Quantum Entity Foreword: https://www.eqjournal.org/?p=2932
Excerpt from Quantum Entity: ‘Worry Dolls’, https://www.eqjournal.org/?p=2939
About the Author: https://www.eqjournal.org/?p=3030
Miss Buril: https://www.eqjournal.org/?p=2911
Artpreneur Schedule: https://www.eqjournal.org/?p=2702
‘Siberian Cedar Medallion’: https://www.eqjournal.org/?p=2694
Pine Nut Medallions: https://www.eqjournal.org/?p=2130
** To learn more about building insanely great biz models, please refer to THE COMPLETE BUSINESS MODEL: https://www.eqjournal.org/?p=692.
Prof Bruce @ 6:47 am
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About the Author
Posted on
Monday 19 December 2011
(Here is background on the Author of Quantum Entity, Book 1 of a trilogy written by Prof Bruce due out in June 2012.)
Bruce M. Firestone applied to go to McGill University when he was 14
and turned 15 for his 1st year there, graduating as a Civil Engineer
before he was legally an adult. He was rejected in his first effort to
get a JOB because he was still considered a ‘child’. Hence, he could not
be held responsible for his actions. Three and a half weeks after that
rejection, he was living in Sydney, Australia where a new and exciting
Labour government led by PM Gough Whitlam had just been elected after
many years of right wing rule. The first two things Gough did were:
recall Aussie troops from Vietnam and lower the age of majority to 18.
Prof Bruce with Siberian Cedar Medallions
Firestone worked for the New South Wales government doing operations
research and building things like mixed integer programming models while
adding to his education first at the University of New South Wales
(Masters of Engineering-Science) and then at the Australian National
University in Canberra, where he received his PhD in Urban Economics.
He was among the first group in Australia to fly hang gliders and not
die. He has travelled and worked in Canada, Australia, the United
States, Sri Lanka, New Zealand, India and many other nations. He has
been at times an engineer, a real estate developer, a hockey guy (he is
Founder of NHL team, the Ottawa Senators and Scotiabank Place),
University Prof (where he has had the great good fortune to teach some
of the brightest and most focused students anywhere on this planet who
have before them the opportunity to do what the kids in Quantum Entity
achieve), a consultant, art collector and benefactor, real estate and
mortgage broker, columnist, futurist and novelist as well as Executive
Director of not-for-profit Exploriem.org dedicated to assisting
entrepreneurs and intrapreneurs everywhere.
He somehow also found time to launch or help launch more than 160
startups, write a blog with several thousand articles on subjects of
entrepreneurship, business models, architecture, urban planning, urban
design and the overall purpose of life which can be found at
www.EQJournal.org, create a lively community centred on his twitter
micro blog www.Twitter.com/ProfBruce,
write the Entrepreneurs Handbook, study or teach at McGill University,
Laval University, the University of New South Wales, the Australian
National University, Harvard University, University of Western Ontario,
Carleton University and the University of Ottawa, not to mention marry
the most wonderful girl, Dawn MacMillan, and have five great kids.
…
“Entrepreneurs follow a moral path when they: first, take care of
their business so second, the business can take care of their families
so that, third, their families can take care of them so, fourth, they
don’t become a burden on society or their fellow human being, so, fifth,
they can help others so that, sixth, others can help their business,”
Prof Bruce, 2012.
Prof Bruce @ 3:04 pm
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Case Study: Digicel’s Decision to Enter Haiti Cell Phone Market
Posted on
Sunday 18 December 2011
(Undergrad Mid Term Exam)
I reproduce below a case study we did on Digicel’s decision to enter
the cell phone market in Haiti. It was a controversial decision by
Digicel CEO Denis O’Brien to go into Haiti, by far the poorest country
in the western hemisphere. Digicel already had 11 million customers in
32 other markets, why take a risk on a nation with a record of poor
governance, massive unemployment, sporadic violence and still recovering
from a horrific earthquake?
But where everyone else including his BOD saw chaos and suffering,
Denis saw opportunity not only of a commercial nature but also an
opportunity to make a difference. Haiti, he thought, was a nation of
micro-entrepreneurs-of-necessity who just needed modern communications
tools to unleash their inner hero.
If you would like to try it, first read the news article I reproduce
below, then try the midterm exam on your own. It’s an undergrad exam!
Third or fourth year.
You’ll have to build a Digicel Haiti biz model and, in that process,
you’ll learn why we believe that biz models are so fundamental to
enterprise success. If you get it right, the harder you work, the more
money you’ll make. With the wrong biz model, hard work won’t help you.
You can that look at the sample exam I include at the end of this
post (mine). Good luck with your ‘exam’ (and reading my handwriting. I
am a Dr after all.)
The Article
Cell firm walks the investment walk
Digicel became Haiti’s top employer by providing the phone service it didn’t have
BY RENE BRUEMMER, MONTREAL GAZETTE JANUARY 17, 2011
People wait outside a Digicel store to buy equipment and prepaid
phone cards in downtown Port-au-Prince. Digicel is one of the largest
private sector players in Haiti, but sources within the
telecommunications industry accuse the Haitian government of
“opportunistic public policy making” that favours Teleco, in which the
state has a 40-per-cent stake.
Photo: ST-FELIX EVENS REUTERS
PORT-AU-PRINCE – When cellular phone company Digicel entered the
Haitian market in 2006, many felt they were doomed to fail. They plowed
ahead regardless, investing hundreds of millions of dollars, and in 10
months had built their cellphone network. The hope was to sign up
300,000 clients within the first five years.
They had 300,000 clients in the first month.
With the proper product, a good business plan and the right amount of moxie, Digicel showed, there is money to be made in Haiti.
By the end of its first year, the upstart telecommunications provider
launched by Irish billionaire entrepreneur Denis O’Brien in Jamaica in
2001 had signed up 1.4 million clients in Haiti. It would go on to
invest $370 million in the country, the largest-ever investment of a
foreign private company in Haiti, and has plans to invest another $150
million. They have 900 employees, making it the largest employer in the
country, as well as the largest taxpayer. Digicel says it employs an
additional 60,000 indirectly, in large part through its mini-franchises
visible on every Haitian street corner -a man or woman wearing a Digicel
vest who can top up talking time on your telephone for as little as 25
cents. There are also the vendors who will charge your phone off a car
battery for a few cents, or stand in the middle of the road selling
cellphone chargers to passing drivers.
Much of Digicel’s success came because it catered to the Haitian
masses. Where cellphones used to cost between $70 and $200, putting them
out of reach of 98 per cent of the population, Digicel dropped prices
to as low as $12.50 U.S. Users no longer had to pay for activation or
incoming phone calls. Most phones work on a prepaid system, ending the
need for upfront deposits, complicated contracts, or a fixed address.
“Denis O’Brien saw a market you could make money in, and at the same
time a way to encourage other people to move in and invest,” Greg van
Koughnett, an amiable Pointe Claire native who is head of legal and
regulatory affairs for Digicel Haiti, said during an interview in his
office in Digicel’s gleaming 11-storey, earthquake-proof building in
Port-au-Prince, the tallest in the capital. It has also opened the
benefits of wireless communication in a place with few land lines to
millions of Haitians, allowing plumbers and masons to reach their
clients, and family members and friends to reach each other. Digicel
says 40 per cent of Haitians now have access to telephone service, up
from five per cent before 2006.
Digicel’s successful gamble exemplifies what some say is Haiti’s best
hope, and a much more effective solution than constantly bestowing aid
-responsible investment by entrepreneurs interested in enriching
themselves and Haiti at the same time.
“It’s perfectly fine to make money as long as it’s done responsibly,”
Conor Murphy told the Slate.comonline magazine. “Responsible businesses
are what’s needed here,” especially in light of the thousands of aid
organizations that have failed to have an impact on the country’s
overall standard of living.
Murphy is the country manager of “Soul of Haiti,” which is trying to build economic partnerships between Ireland and Haiti.
In Montreal this fall, hundreds of Haitian and Quebec entrepreneurs
and officials attended what was billed as the first Quebec-Haiti
Business Forum to spur economic opportunities.
“I think enlightened capitalism can go a long way,” van Koughnett
said at then, noting that Digicel’s charitable foundation has created
more than 20 schools in Haiti, and raised $20 million for disaster
relief. O’Brien and his wife personally funded the rebuilding of
Port-au-Prince’s vast, iconic Iron Market building, home to 900 vendors
downtown, which collapsed in the earthquake. With $12 million in
funding, the market was rebuilt in a year.
Enlightened capitalism has also gone a long way for Digicel -Haiti
represents 20 per cent of its overall revenues, and is its
second-largest market after Jamaica out of the 32 countries in which it
operates in the Caribbean and Central America.
Investing in Haiti has its challenges, however. Digicel’s policy of
not paying bribes means things sometimes take longer getting out of
customs. Startup times for new foreign businesses in Haiti were among
the slowest in the world, but Haitian Commerce and Industry Minister
Josseline Colimon Fethiere told The Gazette that measures have been
taken to reduce the period it takes to start a new business in Haiti
from six months to six weeks. Money is being invested in training,
customs and infrastructure like roads and ports, with the hope foreign
investments can lead to 140,000 jobs in the next five years, Fethiere
said.
For foreign employees like van Koughnett, Haiti represents a
“fountain of youth” -the opportunity to see a new region, work with
young, motivated people keen to learn, and try to make things better.
There are challenges for him, too — since his picture and a short bio
are displayed on Digicel’s web pages, he is considered a kidnapping
risk, so he is accompanied by an armed guard and driven around in a
bulletproof SUV.
Van Koughnett considers it a new adventure. “I’m quite tickled pink to be here,” he said.
For CEO O’Brien, the benefits are also two-fold. In 2010, the mayor
of Port-au-Prince named O’Brien the city’s “goodwill ambassador” in
recognition of his efforts to rebuild Haiti and attract foreign
investment.
rbruemmer@montrealgazette.com
The Mid Term Test
ADM 3396 Entrepreneurialist Culture—Mid Term Exam Questions
“Whether you believe you can, or whether you believe you can’t, you’re absolutely right,” Henry Ford.
1. You are advising the CEO of Digicel, Denis O’Brien, who has mobile
operations in 32 markets in the Caribbean, Central and South America
and the South Pacific. After nine years of operation, Digicel Group
Limited has 11 million cell phone customers.
2. Your CEO has decided to enter the Haitian market, the poorest country
in the western hemisphere and one of the poorest in the world.
3. What’s worse, the Board of Directors is skeptical since not only does
Haiti have a reputation for poor governance but it is also thought to
have a massive problem with corruption compounded by violence.
4. But you remember reading a quote on Entrepreneur Sayings when you
were in ADM3396 way back in 2006 attributed to Baron Rothschild, an 18th
century British nobleman and member of the Rothschild banking family,
who said: “The time to buy is when there’s blood in the streets.”
Rothschild knew what he was talking about since he made a fortune buying
in the panic that followed the Battle of Waterloo against Napoleon. You
believe that the original quote was: “Buy when there’s blood in the
streets, even if the blood is your own.”
5. So you believe that this is the right time to enter Haiti when no one
else would dare. If nothing else, the survivors of the horrific
earthquake will understand the importance of being able to quickly
communicate with family members and others and will take to your cell
phone service quickly, you think.
6. There is also the fact that you know Haiti has a veritable army of
craftspersons, artists, small scale entrepreneurs, contractors plus you
believe there will be an influx of aid providers—all these people will
need fast communications even if it is only cell phone service and not
Internet at first. So you are doubly determined to move forward.
7. Pick from the following menu the elements you believe should go into
your business model for your Haitian venture. Remember, even though you
are advising the CEO of a largish company now, you know that he still
believes that each new venture should stand on its own two feet and be
bootstrapped. Draw a business model for Digicel’s new venture into Haiti
from your selection.
a. Enter the market at the top end only with post-paid service and higher end smart phones costing $70 to $200 USD.
b. Require every user to have a fixed address.
c. You advise that you should take only the ‘cream’ from the top of the
market and leave the masses either without service or let someone
else/some other provider take that risk.
d. Get a local partner and back him or her.
e. Build a cell phone network that only covers the capital of
Port-au-Prince where the majority of the people live. Leave the rest of
the country for later thereby saving about half the $370 million you
think it will cost to enter and develop the market.
f. Outsource customer service/call centre work to another Caribbean island where it is safer to work from.
g. You recommend providing cell phones for the masses.
h. You enter the market with cell phones as low $12.50 USD.
i. You are going to charge fees for activation.
j. You are not going to charge fees for activation.
k. Require every user to sign a contract.
l. Make incoming calls free.
m. Charge for incoming calls but not by the minute but by the second.
n. Set up a call centre and customer service centre in a new, earthquake proof building you plan to construct in Port-au-Prince.
o. Market penetration in 2006 in Haiti is 5%; you believe by 2010 you can get it to 10%.
p. Market penetration in 2006 in Haiti is 5%; you believe by 2010 you can get it to 40%.
q. Market penetration in 2006 in Haiti is 5%; you believe by 2010 you can get it to 25%.
r. Your largest current market is Jamaica. You believe Haiti has the
potential to be the 2nd largest market for you out of the 32 you operate
in because there is no competition.
s. Your largest current market is Jamaica. You believe Haiti has the
potential to be the 2nd largest market for you out of the 32 you operate
in because although there is competition, you believe that you can
outcompete them and that the marketplace has such low penetration that
you can go nowhere but up—all boats will rise.
t. Create a Charitable Foundation in Haiti to build schools.
u. Raise money for disaster relief.
v. A Foundation is nothing but a distraction and should not be part of your business model.
w. Raising money for disaster relief is up to other people and organizations and should not be part of your business model.
x. Your top Manager for Haiti should not be based in Haiti—it’s too dangerous and difficult to operate from there.
y. Your top Manager should be based in Haiti and your duty of care to him or her is accomplished by providing armed security.
z. Your top Manager should be based in Haiti and your duty of care to him or her is accomplished by providing unarmed security.
aa. You are going to establish two or three retail stores where people can come and buy your services and products.
bb. You are prepared to do whatever is necessary to be successful in
Haiti—including paying bribes to get your product released from customs.
cc. You refuse to pay bribes and your product is being delayed every week in the harbour.
dd. You will get involved in the rebuilding of Haiti’s vast, iconic Iron
Market building where 900 vendors work in downtown Port-au-Prince and
raise the $12 million needed to do it.
ee. You believe that this is outside the scope of Digicel.
ff. If you are successful, you believe you could employ 900 people in
Haiti becoming Haiti’s top private sector employer if you put CS in
country.
gg. You expect to build your network in five years—by putting a toe in
the water first in Port-au-Prince, you can not only save investment
dollars, you can see if your model will work before making a full
commitment to the island.
hh. You decide to go all-in and build out the entire network in just 10 months.
ii. You decide to have mini-franchises with men or women on practically every street corner wearing a Digicel vest.
jj. They can top up a customer’s cell phone minutes for a minimum of $10.
kk. They can top up a customer’s cell phone minutes for a minimum of $5.
ll. They can top up a customer’s cell phone minutes for a minimum of $1.
mm. They can top up a customer’s cell phone minutes for a minimum of 25 cents.
nn. They can charge your cell phone too for a fee from car batteries.
oo. No they can’t charge your phone but they can sell you a charger for your home or office.
(20 marks)
Digicel’s Haitian Business Model
[PLEASE TAKE A SHEET OF PAPER AND SKETCH OUT YOUR BIZ MODEL BEFORE8. Do you see an example above where Digicel is working with more than 1-dimension on the client side of the business? (2 marks)
______________________________________________________________
______________________________________________________________
9. Do you think that Digicel would provide a higher or lower level of
service if they centralized customer service in one location outside of
Haiti and why? (4 marks)
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
_______________________________
10. Which of the elements of Digicel’s business model has allowed it
to reduce its marketing problem from-one-to-many to one-to-a-few? (4
marks)
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
_______________________________
11. Identify three examples of DV, differentiated value, or ‘pixie dust’ in the above model. (3 marks)
a. ____________________________________________
b. ____________________________________________
c. ____________________________________________
12. In just three sentences, can you sum up the value proposition of Digicel Haiti? (4 marks)
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
__________________________________________________________
13. Why would Digicel build its own building in Haiti? What are the
two main reasons why Digicel might decide to do that? (2 marks)
a. ____________________________________________
b. ____________________________________________
14. What are two GM (Guerrilla Marketing) things that Digicel might do? (2 marks)
a. ____________________________________________
b. ____________________________________________
15. Francis has purchased a mini-franchise from Digicel. Calculate
Francis’ cash conversion cycle based on the following data: (5 Marks)
a. Cost of mini-franchise: $100
b. Accounts Payable to Digicel at year end: $80
c. Accounts Receivable from clients at year end: $42
d. Inventory (minutes purchased and phones) at year end: $74
e. Francis annual sales are: $2,075
f. His COGS is: $33
Francis’ cash conversion cycle is: __ ________ days (Remember to put a + sign or a – sign in front of your CCC.)
If Francis’ inventory at year end increases by 10%, his cash conversion cycle changes significantly to: __ ________
16. There is a source of Bootstrap Capital in the above Biz Model. What is it and explain why it is bootstrap capital? (4 marks)
______________________________________________________________
____________________________________
______________________________________________________________
____________________________________
______________________________________________________________
____________________________________
(Note: Total marks available 50)
Copyright. Prof Bruce M. Firestone, Ottawa, Canada. 2011.
The Answers
You can see how to calculate CCC, Cash Conversion Cycles below but
you can also download CCC calculators in .xls format from our server and
keep those handy as you develop your own business cases. Here are the
links for the Digicel base case and its sensitivity test: https://www.eqjournal.org/mid-term-CashConversionCycleMeasurement-digicel.xls and https://www.eqjournal.org/mid-term-CashConversionCycleMeasurement-digicel-case-2.xls.
Prof Bruce @ 8:49 am
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Curating Sweden
Posted on
Saturday 17 December 2011
I read today on https://mashable.com/2011/12/16/sweden-twitter-acount that:
‘Sweden’s people have officially taken over the @sweden Twitter
account — and with the blessing of the Swedish government. One Swedish
citizen will control the handle each week, tweeting about whatever
they’d like, as part of a new project called Curators of Sweden.
“No one owns the brand of Sweden more than its people. With this
initiative we let them show their Sweden to the world,” says Thomas
Brühl, CEO of VisitSweden, the tourism ministry that had been updating
the @sweden account since January 2009.
Curators of Sweden is based around the idea that no single voice can
represent the country, so a slew of guest Swedish curators will do the
best job to portray the national character.’
Now this is a pretty cool idea and I can see a lot of uses for this.
Say, you manage the National Gallery of Canada, why not create a Guest
Twitter account and let visitors curate the collection for other Canuks?
Outside the National Gallery of Canada: Maman Sculpture*
Companies, not-for-profits, charities, NGOs, political movements could all do a riff on this.
Artful curating is really what Twitter is all about, at least for me
and I suspect many people like me. I rely on folks I follow there to
curate the world for me– to parse ideas and news from the firehose of
information being created each day in the vast Metaverse that the
Internet has become. This story came via one of them: Pete Cashmore, https://twitter.com/#!/mashable who has more than 2.6 million followers.
I can see cities setting up @Ottawa or @NewYork this way and letting
visitors as well as residents curate their towns for each other and the
world beyond. Maybe you could create @Cisco or @IBM too although I can
see the obvious corporate risks that would come from bad PR generated by
obnoxious tweets or offensive ones. But I think that you could
formulate an application process whereby people would have to sign up in
advance for a chance to be guest Twitter Master for @IBM or @NewYork
and then you’d vet them and screen out weirdos (maybe) or shut them down
if they are.
Perhaps it only works in Sweden because they are all nice, non crazy people. But I would give it a go.
Prof Bruce
For more on ‘Profession to Watch for in the 21st Century: Curator’, please see: https://www.eqjournal.org/?p=487.
* The giant spider called Maman was created by French-Born artist
Louise Bourgeois, who died in New York on the 31st of May, 2010, age 98.
Prof Bruce @ 6:09 am
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Bootstrapping Myself to a Vancouver Condo
Posted on
Saturday 17 December 2011
(Guest article by Jennifer Schweers, Founder, urbanlensphotography.ca)
I was in my last year of University, in my final semester, when by
chance I signed up for a course on Entrepreneurship given by Prof Bruce.
While I had some interest in it, I was mostly looking for a JOB with an
important title when I finished University where I was pursuing a
degree in Communications with a minor in Biz.
Jennifer Schweers, Founder, Urban Lens Photography
While in school, I was working for a bank and after graduation I went
on to work for the brokerage division of that bank. After a few years
of work experience, I decided to move back to Vancouver and look for
work in Finance. It was the summer of 2008. I took my time searching
for the ‘right firm’ to work for as I didn’t want to rush into anything.
Within four months, the stock market had tanked, credit markets were
frozen and the prospect of a JOB was completely out of sight. In
addition, the aggressive trading (options) I did at that brokerage firm
had me so leveraged that when markets dropped 30% in less than a month, I
got wiped out—my entire savings were gone. I can hear Warren Buffett
saying: “You find out who’s swimming naked when the tide goes out.” That
was moi.
Now I was out of work / waitressing to make a living. I moved back
home with my parents. Essentially, my life was in the dumpster—not
exactly corresponding to the vision I had for myself on the day of my
Convocation. It was time to re-evaluate a lot of things in my life.
When you’re left with nothing, you’re willing to take more chances. I
heard somewhere*: “Freedom’s just another word for nothing left to
lose.” That was me and, one day, it may be you.
(* It’s from the tune Me And Bobby Mcgee, lyrics by Kris Kristofferson, Ed.)
I started to ask myself: “What am I passionate about?” I thought
less about what would make me ‘rich’. As Prof Bruce says: “If it’s all
about the money, you’ll have none. If it’s all about building insanely
great things and a community, you’ll have it all. That’s the real path
to creating sustainable wealth.”
Maybe I could bootstrap a new business like I was taught in his
class… I know I’m smart enough and that I work hard—those are necessary
but not sufficient conditions. You need to add focus and passion.
I told my parents what I was planning. We were sitting in their living room when I announced it.
“Mom, Dad, guess what? I’m gonna start my own business!”
“How nice for you,” they responded practically in unison.
“It’s gonna be a Wedding Photography business!”
To my surprise, this declaration was met with laughter. Further explanation just led to more laughter.
“You guys are idiots!” (Aren’t all parents?)
“Jennifer, you don’t even own a camera,” my father said. By this point, tears of laughter were streaming down their faces.
My blood was boiling. I was mad but I was hurt too.
The idea that I didn’t own any equipment never struck me as an
obstacle. I explained to them how I was gonna buy a camera with deposit
money from the first wedding I’d book. They stared at me in complete
incomprehension.
“How can you advertise yourself as a wedding photographer if you’ve never done one and don’t own any equipment?” Dad asked.
But back in the day (in Prof Bruce’s class), we learned about
pre-selling and bootstrapping. My parents are salt of the earth folk but
entrepreneurs? Nope.
Anywho, it didn’t much matter because at this point in my life, bootstrapping was THE ONLY option I had.
After that horrible conversation with my parents, I was even more motivated – to prove them wrong.
So I built a website and began to market myself online. It was during
the early stages of Facebook advertising and my timing was impeccable.
The golden ticket (aka ‘Magic Marketing Button’ something else I
remembered from Prof Bruce’s class– which is a ‘button’ you press et
voila, sales happen!) was when people changed their FB status to
‘Engaged’. I could now directly target my audience in a geographic
location of my choice and only pay for clicks that went directly to my
website. Thanks Mark!
I had my first in-bound call within a week of launching the site
along with my FB ads. It was from a couple in a really small town on
Vancouver Island where the logging industry was everything.
They’d been hit hard by recession. The couple, both married
previously, was not looking for a dream wedding but a simple ceremony on
the beach and wedding pictures at an affordable price that would
capture key moments of their day.
I drove up to meet them, with a photography portfolio of flowers and
birds and trees, and with all the confidence in the world, assured them I
was capable of taking their wedding photos. I left their house with a
deposit in hand – my parents freaked. Ha!
That summer, I did four weddings, all successful. My new enterprise,
Urban Lens Photography, is now heading into its fourth year.
I’ve met fantastic people and been a part of their most important
day. I’m extremely grateful for the opportunities they give me. I love
building, creating and seeing things come to life. I love watching what I
envision in my mind’s eye, captured with my camera for all the world to
see. I love the story that photography tells and how pictures become
even more valuable as time passes.
I moved to Vancouver three years ago and have been working full-time
for an Investment Firm the last two. Of course, I maintained my
photography business as well. It’s my Personal Business for Life (PB4L)
and I’ll never compromise it—it’s my fallback position and my ‘iron
reserve’.
I continue to Bootstrap it too—I rent all my lenses and write off the
expense against income. Over the last four years, my total marketing
expenses have been about $500 and I’ve photographed countless weddings
now.
As an entrepreneur, your first few clients are your most important
ones as they validate you and give you self-belief and self-confidence.
That’s also what a good mentor can do for you—tell you if you are on the
right track or not because they have a mental map of the way that the
world actually works and they test you and your idea against it.
Confidence is everything.
It’s a lot easier now to book weddings with a portfolio of wedding
pictures than it was with a portfolio of flowers, birds and trees.
The perks? I’ve photographed destination weddings in places like the
Mayan Riviera and the Dominican Republic – all expenses paid by my
clients. The extra money I’ve made from my PB4L gave me the money I
needed for a downpayment on my own condo in downtown Vancouver which I
bought about seven months ago. Four months later, it also paid for laser
eye surgery that I’ve desperately needed for years.
Compare that to the keychain (with a company logo on it) I got after
five years of service with one of Canada’s largest financial
institutions. I quit shortly thereafter.
Ask yourself honestly what it is that you love to do. Be frank with
yourself. Figure out what motivates you. I chose finance because I
believed if I learned how to make money, I would be rich. Three years
into that career path, I was penniless instead.
Prof Bruce said: “You can lie to yourself far easier than you can lie
to others.” And when you tell yourself the same lie for long enough,
you actually start believing it.
If I knew then (when I was in University) what I know now, I would’ve
focused more on what my passions are and worried less about whether or
not I’d be successful at it. When you do something you love, you work
harder at it and the money comes on its own. If you haven’t already
watched it, Steve Jobs’ 2005 Stanford commencement speech on YouTube (https://www.youtube.com/watch?v=D1R-jKKp3NA)
says the same thing, only better. Life is short and living your passion
makes each day more meaningful than passing time working at something
you hate in exchange for a paycheque.
A couple months ago my Mom calls me: “I watched your most recent
wedding slideshow on your site, Jennifer. It was so lovely, it brought
me to tears.”
Thanks, Mom.
“Do what you love, love what you do and the world will come to you.”
That is all.
Jennifer Schweers, aka Schweersy, Founder, urbanlensphotography.ca
Comment by:
Robin Andrew of UNPOSED
(https://www.facebook.com/UNPOSED)
This is a great story! I think Jennifer’s very innovative and I love seeing entrepreneurship in action.
I relate quite a bit as I was originally an engineer in high tech and
am now a full time photographer in Ottawa. My paycheque is
substantially less but I have never been happier and I love the
entrepreneurial side of owning your own business.
Her approach of using facebook ads when someone changes their FB
status from ‘single’ to ‘engaged’ is brilliant! I’m not a wedding
photographer but I’ll have to give some thought to a similar strategy
that might work for family and commercial photography.
I do find FB to be a professional photographer’s dream; it’s so easy to get your work in front of people.
The approach I’ve been using is fairly simple. I post client preview
images up and where possible tag people in them. Various fans of my page
(usually previous clients) write compliments on the pictures/clients
are thrilled. These images then get shared around and referrals just
naturally arrive. I’d estimate facebook plays a role in 75% of my
business now. In fact, my FB page is way more critical to me than my
regular web-site.
Good luck with your business Jen!
Robin Andrew
613-799-6524
UNPOSED Photography
Robin@UNPOSED.com
www.UNPOSED.com
www.facebook.com/UNPOSED
Prof Bruce @ 4:45 am
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