The Road to Financial Security and Independence
Have you ever wondered whether entrepreneurs are born or whether they can be
trained? What are the ten key steps in creating and running a successful
start-up? What is a Personal Business for Life and how can you get one? How do
you start a business without much in the way of your own start-up capital? Can
you organize your work life so that if anything goes wrong in your business,
you and your family will be OK? If you are successful, can you hold onto your
business so that it will sustain you and your family for a long time? What does
it take to be a successful entrepreneur? Can you be an ethical entrepreneur?
If these are questions that interest you, read on below to learn more. You
will learn how people are creating long-lived enterprises that have significant
differentiated value—control over factors of production that sustain their
business models in a tough competitive world. Find out how to start a business
with no (or little) money down. Learn how businesses from the Ottawa Senators
and the Ducks of the National Hockey League to Qwantz.com, an online comic
strip, used Bootstrap Capital and Smart (Guerrilla) Marketing to get going.
You will also learn what Chris Rock, Comedian and Satirist, meant when he
said that Shaq is rich but the man who signs his paycheque is wealthy; i.e.,
find out what the difference is between being rich and being wealthy…
You will learn that it takes a big commitment to turn an idea into a
successful organization—one that can provide more value than if you just had a
JOB and one that can survive its founder. Lastly, you may be surprised to learn
what the moral underpinnings of entrepreneurship are and how entrepreneurs also
serve a higher social purpose.
What is a PB4L (personal business for life)? Here is my definition–
A personal business for life is a business owned by a single individual
with no partners or at most one partner (most likely a family member) with
little or no debt which uses small amounts of startup capital and provides real
value to its stakeholders as well as having a close connection with its clients
and customers as well as suppliers.
A PB4L is never put at risk by taking on
too much debt or by being over reliant on a single customer or supplier. A PB4L, as my dad used to say, is an iron reserve—something that you can
fall back on when all else fails. If you look at the definition above, the
words “provides real value” and “being over reliant on a single… supplier” mean
that I am excluding pyramid and multi-level marketing schemes. Things like,
“I’ll tell you how to earn a million dollars if you give me a dollar” and a
million people do it, are not PB4Ls.
They have to be real businesses. One way to find inspiration would be to go
get a copy of the Encyclopedia Britannica and look for crafts from the 1930s.
PB4Ls could be things like making specialty paper, selling nostalgia products,
writing, artwork, jewelry, getting a REALTOR license, urban farming (fruits,
veggies, eggs), grass cutting, landscaping, personal support worker,
hairdressing, bookkeeping, computer repair, car customization, window cleaning,
painting, home repair, deck, fence and gazebo construction, games, toys,
crafts, recipes, sign maker, consultant, life coach, mentor, vintage furniture…
There are millions of ideas.
Go for it,
Can you train entrepreneurs or are they just borne? I believe that, in part,
entrepreneurship must be learned by doing and that success in entrepreneurship
comes from a combination of personal attributes and other factors such as:
a. a pre-disposition to it;
b. supportive family and friends;
c. education and training;
d. finding the right mentor(s);
e. good timing;
f. focus and effort;
g. creativity and innovation;
h. openness to new ideas;
i. willingness to change;
j. ability to discover ideas in the process of doing;
k. high energy;
l. tolerance for risk and stress;
m. acceptance of outside best practices;
n. ability to compartmentalize;
o. ability to sell ideas, products and services;
p. leadership skills;
q. figure things out as you go;
r. dump the losers and keep the winners (know when to quit and when to stay in
s. self motivated;
t. team player;
u. impeccable warrior (see Appendix I for more on this);
v. not easily discouraged;
w. able to juggle many tasks and hats;
x. a finisher—able to complete things;
y. commitment and passion;
Now let’s assume you have most of the above working for you. Is that enough?
Obviously not. In order to create a successful new enterprise, you need to be
able to execute on your ideas. I have created a list of ten things that you
also need to do to be successful.
Of course, there are certainly a lot more than ten things you need to do to
create a successful startup but for the sake of brevity, I limited myself to
So here is my list:
1. Select the right idea for your next startup;
2. Create business models for the 21st Century that produce great results so
that the harder you work, the more money you make and so you can compete
effectively with hard charging entrepreneurs from China, India and other Tigers
by having a business model that can not be easily duplicated or dislodged and
gives you a lasting, sustainable competitive advantage and concession or
3. Add differentiated value, innovation and ‘pixie dust’ to your business
4. Create a compelling value proposition and learn how to clearly demonstrate
it to customers and clients.
5. Self-capitalize (bootstrap) the new enterprise so that you end up owning it
and not a VC firm or other investors or partners.
6. Use smart marketing (guerrilla marketing and social marketing) so you will
acquire customers and clients cost effectively.
7. Mass customize products and services using the Internet so that, for the
first time in history, you can get custom outputs from standard inputs as well
as reverse out some of the work to your clients, customers and suppliers
creating a scalable enterprise that can produce more value than if you had a
8. Find pre-launch and launch customers and sell, sell, sell (as Ben Affleck
said in the film Boiler Room: “ABC—always be closing).
9. Execute expertly, show leadership and become a trusted member of your
community and business ecology.
10. Make your own rules and set and achieve your goals!
PB4L—Personal Business for Life
For the last few years, I have become increasingly certain that people in
the 21st Century are going to need what I can only call a Personal Business. It
seems to me that there are so many changes going on in the local, national and
global economy and so many things can and do go wrong, that it might not be a
bad idea after all to have a fallback position.
I have insisted that my students have a Personal Web Site for life—a place
where they can collect their personal IP over their lifetime and career and one
day, maybe, they can find a way to make money from it too—while they are lying
on a beach.
But something else struck me recently: just how many people have little
sideline hobbies, gadgets, gizmos … micro businesses really, that make a bit of
money. It also struck me that this could be a highly useful thing to have.
Best of Kanata
Let me give you an example. My friend, Richard Rutkowski, a former City of
Kanata Councillor is an intriguing person—very sure of himself, a good
marketer, a good promoter and a sure handed politician (now a successful
REALTOR with his own Brokerage.)
I asked Richard if he did something else beyond being a REALTOR and, sure
enough, he hauls out this cute little magazine called The Best of Kanata. Now
this is really low tech—essentially, local businesses advertise in it, so that
is one revenue stream for Richard.
It costs about $600 for a half page and there are lots of pages. Then,
people buy these books for 20 bucks and in the back of the magazine, there is a
‘member’s card’ about the size of a credit card, which entitles them to 10% off
at all stores and services featured in the book.
When I did a Google search, there was no mention of it. So, Richard hasn’t
even bothered with a web site.
Well, this is a pretty simple business and folks advertise in it like crazy
because they like Richard and it works for them and it is pretty inexpensive.
Richard sells 5,000 copies of the book, so you can figure out for yourself
the economics pretty easily.
The business model has more depth to it than it might first appear. Revenues
are generated from advertisers and book purchasers. But it turns out that
Richard’s clients are also his suppliers and his suppliers are also his
Advertisers supply ads, which form the content of the book. Plus they supply
the 10% off cards that drive sales to the public. But interestingly, the
advertisers also stock the books for sale to members of the public. If you
place a half page ad in the book for, say, $350, and you sell the book for $20
of which you get to keep $10, so you only need to sell 35 books before your ad
costs you nothing.
Think about the compelling value proposition that Richard can present to a
single customer—you can buy an ad for a negative cost if you can sell more than
In this way, his clients form one of his sales channels. Another sales
channel consists of local charities and other good causes. The Kanata Food
Cupboard, for example, sells each book for 20 bucks and keeps 15. Minor hockey
teams use it too—to raise funds for hockey tournaments, for example.
There have got to be a zillion of these kinds of ideas. I told Richard:
“NEVER, NEVER sell this thing; it is like a sinecure, a franchise, a license, a
concession … it is your ‘pixie dust’ forever.”
It is low tech and low intensity to manage this particular micro business
and it is a kind of concession as it is so local, so focused and Richard is so
well known locally that everyone who is anyone in the ‘urban village’ that is
Kanata is going to be in it.
The cost to start the Best of Kanata was negative—Richard was able to
pre-sell enough advertising so that the cost of printing the first book was
more than offset by deposits from advertisers. They gave Richard 50% of the
cost of their ads upfront because they trust Richard and because they want
Richard to succeed since it’s in their best interests that he does.
I have thought that there is a big, scalable business in this model—how
about the Best of Dartmouth, Best of Cole Harbour, Best of Lower Sackville,
Best of Manhattan!
I think creating businesses via entrepreneurship should aim to provide an
individual with more value than if he or she just had a J.O.B. but maybe there
is a more subtle message here.
Perhaps, we should each have one micro business that we hang onto for life;
that never gets shared with anyone, no partners, never is pledged to a Bank for
a loan and, thus, something that we can fall back on in troubled times.
It would be pretty cool if every man, woman and child on the planet each had
a Personal Business (PB) that stayed with us throughout our lives and, if
things get messed up, well, we have (as my father would say): a fallback
position or an iron reserve. My father lived through two World Wars and he
really understood the need for both.
A PB4L does not include things like the guy who tells you: “I can show you
how to make a million! Just send me ONE dollar, and I will tell you how.” And,
of course, the answer is: “Get a million fools to each send you a dollar to
tell them how…”
They have to be real businesses. One way to find inspiration I think would
be to go get a copy (from your library) of the Encyclopedia Britannica and look
for crafts from the 1930s. Say, for example, making high end paper for
socialites and important persons who want acid-free paper to preserve their
writings. Who knows what you might find there.
Dinosaur Comic, Qwantz.com
Let me give you another example. Ryan North, a brilliant IT professional,
started qwantz.com in the learn-by-doing part of Entrepreneurialist Culture,
one of the courses I teach. Qwantz.com is an online dinosaur comic strip.
The only problem Ryan had was that he couldn’t draw. Like most
entrepreneurs, he turned a weakness into a strength. His comic strip has six
panels with two dino characters—all images are taken from free, publicly
available clip art. The key is that the panels and characters NEVER change.
They are the same, day-to-day.
What changes is the dialogue between the characters—T-Rex is a large,
stumbling, know-nothing and chauvinistic loud mouth. The other two characters
are: Dromiceiomimis (the tan coloured dino in the middle panel) and Utahraptor
(the orange one), who is loving, warm, smart and wise. From this somewhat
inauspicious start, Ryan has become an internationally known writer who creates
and self-publishes the only daily comic strip with images that never move or
change. It is the subtlety of the dialogue that creates interest and a
strangely compelling read that becomes more interesting the more you read it.
It doesn’t hurt that Ryan is brilliant and quirky.
Here is T-Rex’s take on entrepreneurship:
Ryan’s daily routine is to get up and answer his fan mail for about an hour.
Mixed in are requests for merchandise. That is one of Ryan’s revenue streams.
He sells a ton of t-shirts and, wisely, he handles the money while outsourcing
After an hour or so, he turns his mind to the comic of the day. By noon,
he’s done and ready for the rest of his day. He travels widely, does
appearances at comic conventions where he signs copies of his books (such as
Your Whole Family is Made of Meat) and had time to fool around developing an
advertising engine (Project Wonderful) that was profitable within ten days of
its launch. He makes a ton of money and has a wonderful life.
Ryan started Qwantz.com with less than $100. His marketing budget was around
$20. He bought the domain name poo.ca and put up cardboard cutouts of T-Rex
around the University with this domain name on it and nothing else. Students
started checking out the mysterious site and got hooked on his comic.
Ryan North in a tree (with friend)
(If you type in poo.ca it still resolves to the Qwantz.com URL. The comic
has been continually published since Feb 1, 2003. Revenue streams include:
merchandise, appearance fees, book sales, Project Wonderful ads.)
Ryan also allows guests to create their own Qwantz.com panels. Here are two
of mine based on my experience in Australia where I did both me
Masters degree and PhD and also a send-up of our Bring Back the Senators
campaign. See below.
Why Australians Win Gold Medals
Bring Back the Ottawa
Qwantz.com has also served as a platform for Ryan to build ProjectWonderful.com, a democratic
and successful advertising engine and Oh No
Robot, a personalized comic search engine and transacription service. To
learn more about Ryan North, read his interview with Newsarama.com’s Zack Smith
(Feb. 2, 2011): http://www.newsarama.com/comics/wide-world-webcomics-dinosaur-comics-110202.html.
Now a PB4L is not just a fallback position. It can be a contributor to
pulling people out of poverty in LDCs around the world. It was not government
Five Year Plans that brought India
out of poverty—it was the unleashing of the entrepreneur class in those
countries that did it.
The Project Wonderful Launch
Project Wonderful was launched by Ryan North and turned proftiable in ten days. PW is a democartic advertising engine that allows advertisers to compete to set the prices they are willing to pay for a content creators traffic.
How to Populate a New Site
Many people believe that marketing for the launch of a new product or service is a mysterious process. Not so. There is no ‘secret’ to marketing success. There is no magic button that you push and then sit back, relax and watch the traffic counter on your website suddenly go to warp speed. You still need to use ‘shoe leather’, that is, stop trying to push on a string. Sometimes, all you need to do is to ask people (either in person, by phone, by email or through your network of friends on the Internet) to support you and they will. It also helps if you have the endorsement of some influential people in your industry.
I asked Ryan North how he launched his democratic and transparent advertising engine, ProjectWonderful.com (which has become terrifically successful) and this is what he answered:
a) Qwantz.com was the main thing. It taught me the value of a “celebrity” endorsement. (The celebrity Ryan is talking about is himself, a well known writer of the daily dinosaur comic strip found at Qwnatz.com, Ed.) We had tons of people using PW on day one—I talked directly with everyone (sometime by phone, sometimes by email and sometimes by blogging about it on my site and others that I respect) and they were just waiting, eager for me to launch—so much so that I had to throttle signups just to keep up. It was one of the most flattering things ever to happen to me, even if I have to be a bit egotistical to refer to myself as a c-list Celebrity here.
b) It also helped that I have an IT background and was using PW myself. As a content creator, I knew what other publishers were looking for and needed. I also understood the other part of the equation—what advertisers were looking for, for example, I gave them control over the pricing for their own ads. That is, they were able to make their own determination about what the traffic on any site (and the quality of that traffic) was worth to them. I also protected the publisher because the price of each ad is posted right underneath each PW display ad and another advertiser can come along at any time and outbid the first advertiser. So rates are set by advertisers in a completely fair and transparent way while at the same time, content creators get full and fair value because the advertisers compete for the space.
c) Twitter would certainly have helped but PW launched before Twitter had traction, and I wasn’t using it then. If I had been, though, I would’ve posted about it. At the time I used blogs and other social media in much the same way.
d) Having a good product that solves a real problem as I did with PW was key but even so if you want to fast forward word of mouth and grassroots growth, having an opinion-maker (which doesn’t have to be a celebrity, but someone who others respect) using your product really helps. I think this is why companies send products out to people for their review but a product review is sort of a pale echo of what I actually was able to do with PW. An opinion leader reviewing your product/service is good; the same person actually USING the product/service day-to-day is way, way better.
I hope this helps! And yes, please feel free to share it with your students.
Note: I think Ryan’s pixie dust (other than the fact that he is a brilliant tech guy) is his quirky personality which people picked up on with PW. He spread the gospel of an open advertising platform through a vertical—comics, socially aware content creators and off beat personalities who ‘get’ Ryan. It then spread fast. But Ryan’s own recommendation and his ability to make direct contact with hundreds of launch clients was huge as well…
Here are two examples of the power of entrepreneurship to alleviate poverty:
Gulbadan Nesa in the village
of Bishnurampur received
a $90 loan from the Grameen Bank in 2001 when she was completely destitute. She
bought some egg-laying chickens, which have an interesting characteristic: they
lay eggs every day– it is the start of a sustainable cashflow.
She has since traded up and now is selling construction materials. She is an
entrepreneur; she is self sufficient; she now has her own home; she can take
care of her family. Now, she must also learn that once you have struggled to
build a successful business, you have to hold on to it: she needs a build and
Gulbadan Nesa, Micro Entrepreneur
I read an interesting article years ago in the Globe and Mail (by Luke
Harding of the Guardian News Service, February 10, 2003) about micro
entrepreneurship in Kalmandhai,
There, slum dwellers erected latrines—one for men and one for women and a
third for children only.
Charging just one cent per use, they built a profitable business using only
$900 USD in start-up capital advanced to them by UK based WaterAid.
Who would have thought that you could make a successful business out of a
latrine but that is apparently what the women of this village did. I was
intrigued so I sat down and did a spreadsheet on it this morning and here is
what I conjectured:
Village of Kalmandhai, India with assistance from WaterAid, UK
Cost of Construction of New Latrine
Men’s $450 USD
Women’s $450 USD
Total $900 USD
Revenues Per Use $0.01 USD
Daily Use Men 300
Children 400 free
Total Use 1,075
Total Paid Use 675
Total Daily Revenue $6.75 USD
Annual Revenue $2,463.75 USD
Maintenance 10% $90
Night Watchman 1 $450 $450
Cleaning Staff 3 $1,350
Net Revenues $573.75
Return on Investment 64% p.a.
So they achieved a (possible) 64% p.a. rate of return on this investment,
which is impressive. Just as importantly, there are significant health benefits
that accrue to these people from proper disposal of human wastes. Plus they
generated additional activity including:
a. the construction of a shower block for traveling truck drivers that pass
through the Village and for the villagers themselves (and more fees);
b. the use of their ‘product’ (from the latrines) in their herb garden (for
self use and third party sales);
c. start-up of a composting business;
d. money lending to women in other villages to start similar enterprises.
Think about the number of jobs they created-from a latrine! Give a human a
fishing rod, not a fish.
If these women could create a thriving business from a $900 investment just
imagine what privileged people like us, like you students here today—with all
the advantages you have: great education, access to capital, free, civil
societies and much more—can do.
Innovation and Value Creation
How much innovation do you need to create a successful PB4L? Does innovation
always have to be about BIG ideas or never-before-tried ones? No, of course
Not all of us are blessed with the insight to create equations like:
But here are three relatively minor insights that added significant value to
their respective enterprises:
a) Ray Kroc, Founder of McDonalds, taught his employees to famously ask: “Do
you want fries with that?” Who knows if Ray invented the concept of upselling
but he sure made good use of it to create a globe-spanning business.
b) Jeff Bezos, Founder of Amazon.com*, saved his business by adding one
question to the website: “Would you like to see what other people who bought
this book (CD, DVD, etc.) also bought?”*
This use of Amazon’s gigantic relational data base meant that instead of
perhaps selling one book to a customer, they had a shot at selling two or
three. If you are having a minimum wage slave going into a large warehouse to
pick a single item, imagine how Amazon’s bottom line is changed when he or she
picks and then ships two, three or more items at a time.
c) Ralph Shaw is helping to create a Real Estate Brokerage that is one of
the few that does both commercial and residential real estate. He is teaching
his agents to ask: “Is there anything else we can help you with?”
after completing a transaction or a listing presentation. You might be
surprised at how many residential clients need help with a commercial lease for
example or how many commercial clients need help selling or buying a home.
Innovation is where you find it. Often, great innovations flow from contact
with the marketplace—contact with clients and customers. That is one of the
reasons why I always want the folks I mentor to find pre-launch clients, you
can learn so much from them. Innovation is everywhere—you just have to be open
to new ideas wherever they come from.
The Japanese believe in constant improvement.
Small things do make a difference.
Now once you have stumbled upon your next great idea on how to improve and
innovate within your industry, remember that innovation and good ideas without
excellent execution are practically useless.
(* Amazon’s relational data base has another cool application—for
researchers, you can put in a book you are reading and see what other people
who ordered this book are also reading. A lot of smart people use Amazon and it
is a simple way to add to your bibliography whether you are a researcher or
student writing an essay.
For example, I recently read Nassim Nichoas Taleb’s book, The Black Swan.
Taleb makes a convincing case that unlikely events (such as the recent economic
meltdown) in areas such as economics, weather forecasting, science and tech,
are actually far more common than typical statistical models (based on bell
curves) would suggest. I tend to believe this from my experience as an
curves might work well for distributions such as height or weight in human
populations but don’t fit the data well in many other areas. Surprises, good
and bad ones, are surprisingly frequent in many other fields of endeavour.
Here is what Amazon suggests others who bought Taleb’s book also bought: The
Age of Turbulence: Adventures in a New World by Alan Greenspan, Fooled by
Randomness: The Hidden Role of Chance by Nassim Nicholas Taleb, A Demon of Our
Own Design: Markets, Hedge Funds… by Richard Bookstaber, The Halo Effect by
Phil Rosenzweig, Way of the Turtle by Curtis Faith, When Genius Failed by Roger
Lowenstein, Super Crunchers: Why Thinking-by-Numbers Is the New Way to Be Smart
by Ian Ayres. These are just some of the Amazon results. There are 17 pages of
results! Enough to round out any bibliography! This is a free ‘service’ by the
way. Just put in the name of a book and you get the suggestions from Amazon.)
Having said that, the only real way to boost your take home pay is to
increase your productivity. And by now, just about everyone has realized that
in a global economy, the only way to do that sustainably is to innovate.
Working longer hours for less pay will also boost a nation’s productivity stats
but who wants to volunteer for that duty?
My wife recently introduced me to a new kind of dental floss—it is sold by a
major consumer products company. Their dental floss is caked with a toothpaste
powder. This is so when you floss your teeth, toothpaste is applied to
hard-to-get-with-a-toothbrush areas, namely your gums between your teeth.
I wanted to shake the inventor’s hand. If you think eating nice foods with
your own teeth in your 50s, 60s, 70s and 80s would be nice, this is an
And I am sure it is not trivial to do this. Adding toothpaste powder to a
long string isn’t easy: first, it has to stick to the string, second, dental
floss is exposed to a lot of different environments and the toothpaste powder
must not dissolve when the floss gets wet or is exposed to a lot of humidity
and, thirdly, it can’t rot and poison people if it sits around the store for a
while and then in your cupboard or (worse still) your shower stall.
Now I have read lots of books on becoming more creative and innovative, and
I recommend: Think Better: An Innovator’s Guide to Productive Thinking
by Tim Hurson (McGraw-Hill, 2007) and The Black Swan, The Impact of the
Highly Improbable by Nassim Nicholas Taleb (Random House, 2007).
Hurson has a formula that he applies to organizations to help them become
more creative; part of his formula is using Galeforce—writing down as many
ideas as you and your team possibly can in five minutes (at least 50) to solve
a problem you face. By going really hard at the problem in a short period of
time, you prevent group-think from taking over the session or
guess-what-the-boss wants behaviours or satisficing (settling for the first
likely useful idea before you get any other ideas on the table) or allowing
your own or others critical judgment to suppress ideas by saying things like:
‘that sucks’ or ‘that will never work’ or ‘we can’t do that because we have
never done it that way before’ or ‘we don’t have the resources to do that’…
Hurson also has a six step Productive Thinking Model that he takes his
clients through that looks pretty useful.
But one of the things that I think is missing from his model is provision
for Black Swan events.
Taleb’s book’s title is based on the idea that just because you have seen
thousands of swans and all the swans you have seen are white, that doesn’t mean
that there aren’t any black swans. I think that Taleb’s book will appeal to
entrepreneurs a lot.
Go Travel Direct and Zoom Airlines
I have flown with GoTravelDirect.com a few times.
Their business model was certainly a sound one in my view. Let people book
charter flights and hotels online; fly from my home town (Ottawa) direct to
their vacation destinations without having to transit through either Montreal
or Toronto (which adds as much as one day to trip times); fly and stay at nice
places for not too much money if you book well in advance and fly full planes
and get cheap hotel rates because you are delivering a lot of people to the
They later added to their business model by buying their own airline, Zoom
Airlines. This way, they would have more control over their schedules and costs
(or so they thought).
On the afternoon of August 28th, 2008, Zoom went bust and now (August 2009)
GoTravelDirect.com has suspended operations. Clearly, the consumer’s confidence
I was wondering what could possibly have been done to prevent the demise of
Zoom. The business model absolutely requires people to book well in advance. It
is the only way to be sure that you can fly full planes. And people who book in
advance want certainty about the price they pay and they want low prices.
But who would have thought two years ago that oil prices would reach $140+
per bbl? If anyone tells you that they predicted that, they are probably not
telling you the truth. I predicted higher fuels prices over six years ago
(which is why I bought a VW Beetle at the time) but there is no way that I
would claim I foresaw $140 per bbl.
Neither did Zoom*. Their fuel costs went up over $50 million in less than a
year and there was no way they could pass those rising costs on to their
customers. This is a Black Swan event of the first order and shows you that
sound business models can go south in a hurry and planning can be useless.
(* This would make a good case study and I hope one of my student teams will
take this on. If Zoom and GoTravelDirect.com had anticipated the rapid increase
in fuel costs maybe they could have built-in an inflation factor into their
pricing policies. But I would guess that if they had done this, they would have
lost many of their customers and actually may have gone bankrupt even sooner.
It is a difficult and possibly intractable problem but, perhaps, some creative
genius student will solve the problem in his or her case study.)
I suspect that what the US experienced in 2008 and 2009 is not only a Black
Swan event but also something that Malcolm Gladwell described in his book, The
Tipping Point. Running (unsustainable) twin deficits (Trade and National
Account) for many, many years, the US courted disaster during George
W. Bush’s two terms. Either one by itself might have been manageable but when
combined with a credit crunch, a housing meltdown, little or no personal
savings, enormous household debt loads (including high interest payments and
rates, unsecured debt such as credit card debt, ridiculous CEO pay levels tied
not to long term performance of their companies but to short term stock market
fluctuations, greed and corruption on Wall Street plus ever increasing
complexity and opaqueness in financial products), sometime in 2008, the tipping
point was reached and a non-linear event happened.
What I am saying is that being more innovative and creative is important. I
believe that you can learn to be more innovative and creative. But part of that
is learning to take advantage of unpredictable events—somehow seeing that
toothpaste powder and dental floss go together or that getting my real estate
broker’s license would lead to a completely new situation in my life, a better
Entrepreneurs know that necessity is the mother of invention and, while I
wouldn’t wish all of the circumstances I have faced to be replicated for anyone
else, I think you have to recognize that chance plays a big part in life. Mind
you, you have to be open to change, be able to see how seemingly unrelated things
are, in fact, relevant to each other and be prepared to seize the day.
Field Notes: Something Old is New Again
I collect stories about Personal Businesses for Life (PB4L). We can all
learn a great deal from people who have already bootstrapped an enterprise,
made it successful and kept ownership of it—away from Banks, VCs, Angel
investors, angry creditors, partners, ex-spouses, what have you.
As we have already seen, a good source of ideas for PB4Ls might be to visit
your local Library and look at old copies of the Encyclopedia Britannica. I
recommend pre-World War II and even pre-World War I vintage encyclopedias—what
you are looking for are ‘ancient’ crafts that you can reuse and recycle.
Former snowboarder, Aaron Draplin, created a $1 million per annum business
based on an old recipe—authentically crafted, offset printed sets of Field
Field Notes Nostalgia
I am an inveterate note taker and the nostalgic look and feel of their
website and product really appeal to me. See: http://fieldnotesbrand.com/. Their
tagline, taken from one of their ancestors, is too precious for words: “I
am not writing it down to remember it later, I’m writing it down to remember it
There is a lot of truth in this—I don’t care what anyone says, there is
something quite different between writing something down using pen and paper
versus recording it on your tablet, say. Many authors over the years have told
me that they produce a completely different style of writing if they eschew a
computer (or for that matter a typewriter) and write a novel by hand. No one
does that anymore and it shows.
When we designed the Palladium (now called Scotiabank Place), you NEVER saw the
architects of record (Gino Rossetti and his son, Matt) without their Field
Notes and Sketch Pads. I asked Matt why, with all the CAD software he has
access to, he still used his sketch pad. He told me: “Here’s why: I can
create much more complex, much more graceful architecture, much faster, with my
sketch pad than with a computer. It is much too confining.”
I still haven’t found any better way to control a business, even large
businesses, than through the daily making of lists of things to do. I insist
that people around me do that. Folks I know who use their smartphones or PCs to
control their calendars and to-do lists are much less accurate and productive,
I am sure of it.
This is not to say that I don’t love the tools we have available to us
today. I am on record as saying: “I’m like the Scarecrow in the Wizard of
Oz: I have half a brain. My computer is the other half.” So this post is
not an argument against technology, just its misuse.
To survive today, you need to be innovative as well as productive and I
think Field Notes or just a simple pad of paper can still help you with all of
Now Draplin and his partner, designer Jim Coudal, sell these 3” x 5” books
for $9.95 in sets of three. They have developed numerous sales channels
including their website, attendance at agricultural fairs and 250 retailers who
have to apply to be accepted into their network. This reverse snobbery works
for them—these retailers have to prove that they buy-in to their philosophy
which includes: authenticity, “Made in the USA”, use of local materials, a
heightened sense of the importance and central mission of design and fashion,
transparency, and nostalgia for community values of days gone by. Their clients
go out of their way to suggest to them which retailers might qualify…
They bootstrapped the firm—no VC money. Their marketing is based on video
documentaries they produced for an online community that focuses on the
Founders’ experiences with the development of Field Notes as well as those of
their suppliers, retailers and customers—they understand that they work within
a business ecosystem that nourishes them and that they, in turn, embrace by
involving them in the whole, evolving story of Field Notes. Customers can post
examples of how they use Field Notes and learn from each other’s experiences
with the notebooks.
Now let me tell you a story about Jeff Cavanagh from Thomas Cavanagh
A few years ago, I asked him: “Hey, Jeff, do you have a Blackberry?”
“No, Bruce, I got me a Strawberry instead.”
“What’s a Strawberry? I haven’t heard of a smart phone called the
“Well, it’s this here little black, pocket-sized notebook of mine where I
write down all the things I gotta do with this little pencil.”
“But don’t you miss not having email, your calendar and a bunch of apps on
your cell phone?”
“Nope. Look at it this way. Let’s you and me suppose that Sir Alexander
Graham Bell had invented email instead of the telephone, that his patent in
1876 was for email not voice communications. OKAY?”
“Let’s further assume that voice did not become possible until Tim
Berners-Lee invented the Web in 1991. So we reverse the order of invention,
“Then imagine the conversation you and I might be having today. It might go
something like this: ‘Did you see this new fangled thing that just came
out—it’s called a tell-a-phone. You can get someone on the other end and you
can actually hear what they are saying. You can pick up nuances in their voices,
you can laugh together, you can plan together, you can negotiate and you can do
it all in real time. It’s almost as good as being there.
‘No more waiting, sometimes days, for someone to answer your email. No more
misunderstanding stuff just because you were trying to be funny or sarcastic
and it fell flat in yer email.
‘Or suppose you need something done urgently, you can actually get some
action by impressing upon someone the importance of what you are saying by
raising or lowering your voice—people are good at picking up tonality on the
There is a lot of wisdom in this. The best way to do things might just be a
bit old fashioned—like having F2F meetings, like writing things down, like
making phone calls. Clearly, Draplin and Coudal have found something special
that people want and, by combining it with modern marketing and distribution,
they have created lasting value for themselves and their families.
It will be hard to knock off Field Notes, not because you can’t create a
nice looking notebook too but because you can’t (easily) recreate their
dedicated community of suppliers, retailers, customers who have also become
friends/fans and followers and who have together formed a bond around the
themes that the Founders have woven together into a compelling story.
Sources: Financial Post, December 6, 2010 story by Deborah L. Cohen: “Social
media gives old medium new life”.
Identifying Risk Factors—A Case Study: Two Monkeys Coffee & Tea
Here is a short case study of a new Personal Business for Life (a coffee
house) set up in suburban Ottawa
by two partners, both in their 30s, Jill Sheppard and Rob Kay, who each own 50%
of the business. The current business environment is fraught with peril—they
have opened during a world-wide economic crisis that began in October 2008 and
continues, the location is a suburban mall (in Barrhaven, a suburb outside of
Ottawa, Canada) that is close to a relatively prosperous residential area but
the storefront is not easy to see or find, there is a lot of competition from
established national chains like Starbucks and Tim Horton’s as well as local
chains such as Bridgehead.
The students’ job is to read Jill’s description of the business below and
identify the risks for the business in addition to the ones described above.
From your analysis, you should be able to describe all the risks you have
found and identify possible solutions. You will be talking to an audience made
up of family and friends who are thinking of investing in this business.
From: Jill Sheppard
Sent: Friday, September 04, 2009 12:27 PM
To: Firestone, Bruce
Cc: Rob Kay
Subject: Two Monkeys Coffee & Tea House Inc.
It was a pleasure to see you yesterday in the shop; it seems life after we
worked together at (unnamed tech co., ed.) has been good for both of us.
I was thrilled to hear you enjoyed your muffin and tea yesterday – the next
time you come in I will try to coax you into trying one of our loose leaf teas,
I know you will enjoy every drop.
I have attached photos of the shop in hopes of taking you up on your offer
to be one of your students’ case studies. In terms of our “secret sauce”, we
believe there are four major components that contribute to our ongoing success.
A. The first is my mom – she does all our baking and soup making. That’s not
just a name we put on the cook, she really is my mom.
Everything we serve is made fresh on site. Our soup is made daily from fresh
ingredients and lots of love. Our regulars don’t even ask what the soup and
sandwich of the day is, they just order it and tell us: ‘It doesn’t matter what
it is, it’s going to be good.’
At Two Monkeys: Mom’s Cooking
B. The second is our kids’ zone. Without a doubt, we are the most family
friendly coffee shop in the city. We are parents first and we have designed the
shop from a parent’s perspective. We have given the front of our shop a
traditional coffee house layout to ensure we satisfy the need of those without
“little monkeys”. We feel it’s a great blend of both worlds. (Moms and Dads can
actually go someplace and get a tea of coffee and bring the tykes. No
complaints here about rambunctious kids, Ed.)
C. We wouldn’t be an outstanding coffee shop without our fair trade,
organic, locally roasted coffee, prepared fresh 15 minutes from our shop. It
could only be fresher if we roasted in the shop ourselves, which we won’t do
for several reasons. Our tea selection is growing almost daily. The best thing
about being independent is the ability to react to our customers’ requests. We
can order any flavor as often as we need to. Our suppliers are first rate and
our relationship with them ensures continued success for all.
D. And of course, we couldn’t be a great place to hang out if we didn’t have
a décor that worked for adults too—with comfortable seating, lots to read,
Wi-Fi wireless Internet (for free) and great service.
Comfortable Place to Hang Out for Adults Too
I welcome the opportunity to discuss this with you in more detail. Obviously
I am passionate about my business and could talk endlessly about it. I love
what I do and I love making Moms and Dads happy when they are here.
One of the best comments I have heard in our short five months is: “I
spoke in full sentences today and I had my kids with me.” The formula is
easy… make the little ones happy and Moms and Dads are happy too.
It was also nice to hear you say: “Why didn’t they have a place like
this when my five kids were little!”
As you know, we hope to start franchising the business and spreading the joy
to other areas too…
I look forward to seeing you again and hopefully providing you with excellent
service and outstanding products!
Jill Sheppard, Two Monkeys Coffee & Tea House Inc.
This section is not to be read by students until they have completed their
analysis and pitch.
The risks the business is faced with include:
1. There are still two chairs in Heaven waiting for the first partners to
get there and still like each other. Will Rob and Jill (who are business
partners, have kids and are married but not to each other) put in the same
amount of capital, put in an equal share of the work and have the same
objectives over the long term?
2. A 50-50 partnership is one where there is no controlling mind—maybe the two
partners face a crisis and can’t decide what to do about it—they are
paralyzed/stalemated by their equal say.
3. Suburban malls tend to age poorly—there is little to prevent a newer mall
from opening up nearby and drawing traffic away from established malls. Unlike
most downtowns in Canada and
Europe, there is no scarcity of space that
creates long lasting traffic patterns that also support long lasting
4. They are renting space—many Landlords will raise rents for successful
tenants so that, if Jill and Rob are successful, the cream may end up in the
5. Landlords are also fussy about changes to the premises and outside as
well—they may be limited in what they can do over time to change and renew
6. What about relying on Jill’s Mom for part of their ‘pixie dust’/secret
sauce/differentiated value (DV)? What happens when Mom retires?
7. Suburban neighborhoods change over time—kids grow up. Whole streets tend to
evolve together—soon the kids are teens and not going to Two Monkeys for play
time. Middle aged parents don’t tend to go out as much either. Will Jill and
Rob’s business dry up and blow away?
8. What about the name? ‘Two Monkeys’ may work today but will it work long
term? Aren’t demographic trends (favoring smaller families or households with
no kids) working against them?
9. What about City of Ottawa policies favoring
downtown inside the Greenbelt
development over suburban development? Will that curtail growth in Barrhaven
where they are located?
10. They are thinking of franchising their concept but are they a generation or
two too late?
11. Will franchising work without Mom in each store? Is there enough pixie dust
and DV to sustain a franchising expansion plan?
12. Should they focus on getting their first store to the stage where they have
proved the concept, that it is sustainable, that they can make real money
before even thinking of franchising?
13. How can they survive competition from established chains like Starbuck and
14. Could their competitors mimic part of their secret sauce by, for example,
adding playrooms for kids?
15. Maybe they shouldn’t have opened during the worst recession since the
16. Lastly, what is their ‘Magic Marketing Button’? Their storefront is a bit
hidden. What is something inexpensive and effective that they can do to attract
customers for the first time? We can be pretty certain that they will probably
keep their clients coming back once they have stopped by once; but how to get
them in the door that first time? If they can’t find some marketing that really
works in a cost effective manner, their business is sunk.
Conclusion to the Case
At the end of the day, every enterprise is started not because a hard-headed
analysis says it will be worthwhile doing. New enterprises are started as an
article of faith—the founder or founders believe that they can make a
difference and that their endeavor will succeed.
This is not an argument against quantitative analysis—setting goals,
financial and otherwise, is very important. Knowing what your breakeven is,
aiming for that plus enough to sustain you and your family and your employees
and suppliers and other stakeholders is incredibly important.
But most new enterprises take twice as long as you thought to get off the
ground and twice as much money plus three times as much effort. In most cases,
if you knew then what you know now (to paraphrase Bob Seger), no one in their
right mind would start a new business.
But I am proud of Jill and Rob and their new place and I believe it will be
successful. It is up to you, students, to deal with the problems I have
outlined above and identify other challenges and their solutions. I just get to
be a cheerleader here for these entrepreneurs.
MINI HERB FARM IN THE SUBURBS
You never know where a Personal Business for Life (PB4L) may pop up (so to
Here is an example from BusinessWeek and the Wall Street Journal, where they
are turning small properties in the suburbs into profit-making herb gardens.
They have to pitch landowners in the suburbs and convince them as to why
they should rent them their gardens for the season.
It is not just that this represents local food growing and a (small)
contribution towards a more environmentally sustainable economy, it could be a
cool thing to do with your family as well:
Mini Herb Farms in the Suburbs
Here is an analysis on the above:
Area 0.125 acre
43,560 sq. ft. per acre
5,445 sq. ft.
Cost of Plot $5,500 BW
Start up Cost $2,000 BW
Sales $15,000 est.
Gross Margin 30% est.
Gross Profit $4,500
IRR 58% p.a.
a. You sell for the same as you purchased for at end of year 5.
b. You can probably require most developers to put aside
more than 5% of their lands for parkland and mini farms
too. You might even be able to get a plot for a de minimus
You may also want to introduce some innovation of your own—perhaps you could
stress organic farming as a competitive advantage here or instead of renting
property (you pay the landowner), you could get the landowner to pay you! E.g.,
you could open a ‘school’ and teach the landowner how to start his or her own
mini herb garden. You could also sell them seeds, fertilizers, soils, books,
manuals, even merchandise. You could help them to sell their produce and take a
cut. You could act as a middleperson and arrange for a local merchant to sell
So you want to start a new business? Which one should you select from that
list of ideas you have?
Selecting the right one is very important—one of the things you learn about
successful entrepreneurs is that they know which ideas to choose to put their
efforts behind. Even more importantly, when they choose wrong, they admit it
and go on to other more worthwhile endeavors.
When some of my engineering students from the Carleton University and the
University of Ottawa came to me after graduation with their list of six ‘great’
ideas, five were either impractical, required an amazing amount of R & D,
needed the world (read markets) to come to them or required a huge amount of
startup capital. Then there was the sixth idea—which turned out to be
GradeAStudent.com (today rebranded as GradeATechs.com or just Grade A).
Their value proposition was simple—we will come to your home or place of
business and fix your PC or network: on-site computer repair and training at a
fraction of the cost of the computer repair industry. The results have been
There was only one problem they said– NerdsOnSite.com was already up and
Is this a problem?
Why not? Because they had:
• a strong value proposition;
• a huge and growing market.
If it is a good idea, there will be competition. If it is a bad idea, there
won’t be but so what?
It’s a BAD idea!
What they needed to do was out-execute the competition by:
• Providing superlative Customer Service;
• Using GASnet to reverse out the work to clients and suppliers.
GASnet was a match-making service; it linked techies and clients. For first
time ever, a service business is scalable due to the Internet.
GradeAStudent.com was not the first at home computer repair service but
their execution was good and they used their back end system (GASnet) to
automate their appointments and their billing systems.
Grade A Techs
They have turned it into a multi-million dollar biz (Ottawa,
Tampa, Bellville, Brockville,
Your biz idea/biz model has to meet the following criteria:
1. you must be able to bootstrap it (GAS was started with around $10,000);
2. you must be able to use Guerrilla Marketing (GAS used lawn signs and market
by press release);
3. it doesn’t have to be the very first of its kind (GAS had NerdsOnSite to
4. but you don’t want to face humongous competitors though (like if Dell or HP
were in the GAS space say);
5. there has to be BIG demand (probably 20 to 30% of PCs in NA don’t work at
all or less than optimally at any one time; so GAS’ market is probably
120,000,000 PCs just in NA alone at any one time);
6. you must be able to get customers without killing yourself and they must
become repeat clients which gives you recurring revenues (once people hear
about GAS and use GAS, they use them over and over again);
7. the biz must be able to grow big enough so that you get more out of it than
if you just worked for someone else in a JOB (GAS could be a $100m per annum
8. you need to bring some creativity and differentiators to the industry (GAS
uses GASnet to match student techies and customers and to invoice instantly;
they also use fixed pricing);
9. you need to be able to explain your value proposition in less than two
minutes (GAS provides at-home COMPUTER SERVICE at prices you can afford; no
need to disconnect your PC, take it to a repair shop, wait three weeks, pay an
unknown amount, take it back home, reconnect it to find it still doesn’t work
properly or your hard drive has been wiped or both.)
You are the Chef running a high-end restaurant at 4816, rue Wellington, Montréal, Québec and you are
trying to convince your two partners to sell the restaurant to your employees
and focus exclusively on canning your recipes and selling them across the
planet in specialty shops and at trade fairs and shows like the Fête des
vendanges in Magog-Orford, Quebec.
You just came back from a visit with your accountant and he told you that
last year you made around $55,000 from your restaurant and deli counter. You
worked unbelievable hours running the restaurant and you have a dedicated
client base that love your food.
You speak some English but like many Québécois, you feel more comfortable in
As you were leaving your accountant’s office, he offhandedly told you that
one unusual thing he noticed was that your deli counter made le Chef and his
partners almost 80 grand last year. You didn’t think too much about this but a
few days later, you found yourself awake at 3 am with a thought: “If we
made $80k from our puny nine foot long deli counter but only $55k overall from
the whole enterprise, is there a message here for us?”
You know you are a great chef with unbelievable recipes—this is your
business’ ‘secret sauce’. Colonel Saunders had his 11 secret herbs and spices,
Coca Cola has their secret formula but how many people know how to make your
Smoked Meat de Canard that sells for $18.95 per tin (CAD) or TAJINE DE LÉGUMES
À L’OLIVE ET À L’AGNEAU that sells for $14.95 for a tin that holds 530g?
Answer: only one person knows how to do that—you.
Le Naked Lunch
What if you could work 1/3 fewer hours, travel the world selling your stuff,
visit fabulous places, meet cool people, sell online and in specialty stores?
What if you could actually make money by selling your restaurant to your
employees and make still more money by selling them your products on an ongoing
basis too? Is the fact that you made more money from your tiny nine foot long
deli counter selling take home products than running a complex operation like a
high-end restaurant with its long hours, demanding clients, needy employees and
greedy landlord, is this telling you something?
(It’s interesting to note that when you disaggregate results for even quite
small businesses, you can learn something new. In this scenario, the deli
counter is making an $80,000 profit while the overall business is seeing just
$55,000 on the bottom line. That means the restaurant itself is losing $25,000
When we ran the largest mini-office operation in eastern Ontario, we found that we made money renting
minis but lost money in our word processing and services division. Rather than
closing it, we did something similar to what the owners of Le Naked Lunch did:
we sold it to an entrepreneur. Within six months of buying it from us, she had
turned a $3,500 per month loss into a $4,500 per month profit. Meanwhile, we
received $45,000 from selling the biz, its equipment, client list and lease
plus we turned a monthly loss into a new rental income stream (she paid us rent
for her space).
Also, when we were a partner in Rentalex Tool and Equipment Rentals, our
analysis found that the 16 locations in Ottawa
were making money and all 17 locations in Toronto
were not. We sold the locations in TO to our chief competitor and between the
money we got from our leases there, our inventory and goodwill, we made enough
to recover all our losses from the Toronto
operations since their inception. We also turned an overall annual loss for the
company from a negative $800,000 to a positive $1.4 million per year in just
two years. As my father, the late Professor O.J. Firestone, said: “Keep the
winners and dump the losers.”
Please note: that the accounting scenario presented above for Le Naked Lunch
is created by the author as a plausible set of circumstances for the change
that took place for the Chef and his two partners based on a discussion with
one of the partners in Magog, Québec in September 2009.)
How can you start a great business or, for that matter, a PB4L, with no
money down? How do you get ‘table stakes’ so you can have a place at the table
too? The rule today is, if you have cashflow, you will get financed, not the
other way round.
There really are no ‘no money down startups’; there are only those with
little money down. In reality, every business requires some investment. What we
are talking about is starting a business with an amount of money that is really
de minimus with respect to the size of the opportunity.
The late Mark McCormack started a world-leading sports management business
(IMG, International Management Group) with $500, his law degree and Arnold
Palmer as his first client. Mind you, it doesn’t hurt if your first client is
an Arnold Palmer.
Probably less than 1% of all startups ever get any funding from VCs; that
means that 990 out of 1,000 new enterprises are forced to use bootstrapping as
their only means to success.
Some observers feel that bootstrapped businesses, ones that start with
nothing, can actually be better businesses because they are more focused on
results as well as efficiency and economy of effort.
They certainly appear to be hardier if they manage to get by their first few
Maybe it is the same difference between people who win the megabucks lottery
as their way of becoming rich and the self-made entrepreneur. Many
million-dollar lottery winners are worse off five years after their big win
than before; by that time, they have blown their dough on can’t miss
opportunities and they have no J.O.B. to go back to. Whereas, someone who
earned it himself or herself knows how hard it is to do it and are less likely
to throw it away.
I find that students and others cite the reason they can’t start a business
as not having any money are really saying that they are afraid to start a
business. Now it’s true that starting a capital intensive business like, say,
an alternative energy photovoltaic farm can not be done without funding. But
that does not mean that the entrepreneur has to have the money in his or her
piggy bank before starting.
Entrepreneurs, almost by definition, have no (or very little) money. But if
I was starting a photovoltaic farm, I would look for capital from strategic
partners—you can identify those people by asking the question: Who benefits?
This would include: power generators, power distributors, power consumers, land
owners, Provincial or State Economic Development agencies, equipment
manufacturers, constructors, indeed, all stakeholders are also potential
Maybe you could pre-sell five years worth of power to a large industrial
products company and get cash up front for that contract. Maybe you could get
equipment from photovoltaic manufacturers with no up front payments in exchange
for a cut of your power sales. Maybe a friendly landowner would give you a land
lease for $2 per year plus a cut of your power sales. Maybe you could get a
higher rate for your green power*.
(* In Ontario, you can get 42 cents per Kwh or more versus around 8 cents
for conventional power.)
So even a capital intensive project like this might be amenable to a
bootstrap approach. Certainly, the longest journey is one where you never take
the first step.
Here are some sources of Bootstrap Capital. This is a partial list—which is
all it can be: there are as many varieties of bootstrap capital as there are
ideas out there in the minds of clever entrepreneurs.
1. Soft Capital: Mom, Dad and rich Uncle Buck; basically this is a friends
(Angel Investors) and family round of financing either formally or informally
2. Home equity loans.
3. Business plan competitions for cash (e.g., the Wes Nicol Competition or the
Celtic House Competition.)
4. Future customers, clients or launch clients (e.g., homebuyers in Ontario can be asked for
deposits of up to $20k in advance).
5. Future suppliers can sometimes be persuaded to extend long term credit to
you (e.g., Vendor financing of 30, 60, 90 days or more) or invest cash in your
business since they have a lot to gain if you become another (good) customer of
theirs. They will probably want a long-term supply agreement though.
6. Strategic partners (like Ogden was for the Ottawa Senators in return for a
30 year arena management deal plus F&B deal, they invested, loaned and
guaranteed significant capital to/for the nascent team.)
7. Micro capital lending and grant programs; for example, the GOC’s SBL Program
(Small Business Loan or other government-sponsored sources of start-up capital
like the Ottawa Community Loan Fund.)
8. Supplier rights, product placement and licensing fees (for example, Molson’s
purchased pouring rights for Scotiabank Place and the Civic Centre after the
City of Ottawa was awarded a franchise by the NHL in December 1990 but before
they commenced play in October of 1992. Another example was the selling of
15,000 PRNs (Priority Registration Numbers) during the Bring Back the Senators
campaign of 1990 for $25 each. Each PRN holder the right to purchase a season
ticket in their preferred location in numerical order, if the team was awarded
to the City of Ottawa in the NHL expansion round of December 1990. Note,
however, that there were no refunds if they were not successful. For $25, one
got the right to purchase a season ticket and a bumper sticker and a cool
looking certificate too.)
9. Patent or other IP licensing fees and royalty payments (e.g., Noma
Industries purchase of the rights to LED Xmas light strings).
10. Consulting services (a lot of entrepreneurs support their startups by
providing consulting services at the same time).
13. Financial leasing of fixed assets.
14. Receivables factoring.
15. Publisher’s advance on a book or script.
16. Sponsors (see for example the signing up of 500 Corporate Sponsors at $500
each and 31 Original Corporate Sponsors at $15,000 each for the Ottawa Senators
before the team was awarded. Or for example, getting sponsors like a beer company,
an accounting company, a law firm and others to put their logos on a new curved
gold club that a client of mine is coming out with (it helps golfers drive the
ball straighter). Not only are these types of firms looking for ways to get in
front of a valuable audience like golfers, they are also looking for ways to
advertise that is non-zappable. Every time a golfer brings the club out of the
golf bag for the next five to ten years, they will see sponsor messages. From
the POV of the inventor, sponsors not only defray part of the cost of producing
the new drivers, they are also a distribution channel. A beer company, an
accounting company, a law firm or others like this will probably buy a number
of clubs each year of their sponsorship to give out to their valuable clients
as prizes or than you’s. So sponsorship applies not only to large businesses
like pro sports teams but to startups and SMEEs as well.)
17. Trading activity: buying low and selling high, taking advantage of
arbitrage opportunities (like finding out what percentage of dot-CA holders do
not have their dot-COM equivalents and the dot-COM equivalents are available
and then selling them the dot-COM extensions), building-businesses-to-sell,
buying and selling and buying and selling and trading up, … Check this out:
http://oneredpaperclip.blogspot.com/. This person traded a red paper clip for a
pen and traded the pen for a doorknob and then for a Coleman stove and then for
a generator and then for one instant party and then for a snowmobile and then
for a trip to Yahk and then for a cube van… His idea was eventually to get a
home for himself, which he did and now they are trading the house for who knows
18. Credit cards (oft used strategy but dangerous because of high interest
costs and what can happen to you and your credit rating if you fail to make
19. Scientific R&D Tax Credits (e.g., SR&ED from the GOC).
20. Extracting upfront value from your lease for office space– an example of a
services company that got $800,000 upfront.
21. Reverse or Negative Pledging of Assets (e.g., O & Y not pledging the
value of an office tower to anyone and extracting loans from banks based on the
value of their real estate and based on their not agreeing to pledge it to
anyone. Another dangerous strategy because you can end up over-leveraged.)
22. Co-guarantor: borrowing someone else’s stronger credit rating (e.g.,
Scotiabank Suite Leases pledged for construction financing or Mom or Dad
co-signing a loan…)
23. Accretive buying: buying another company with the target company’s balance
sheet as collateral where you end up with more cash than before. (E.g., Disney
buys the Mighty Ducks of Anaheim for $50m: $25m goes to the NHL and $5m per
annum for 5 years goes to Bruce McNall and the LA Kings. Then they borrowed
$35m against the asset and, after receiving a $20m leasing inducement from Ogden to enter into a 20
year lease for Arrowhead Pond, they had more cash on hand after than before
they bought the team.)
24. Accretive Selling: sell products or services with financing in place where
you end up with more cash after the sale than before (e.g., Leon’s don’t
pay a cent until…. (OAC). Leon’s
than turns around and sells the sales contract for cash.)
25. Employee ESOPs (Employee Stock Ownership Plans).
26. Pre-sold services. (For example, here is an example from Craig deSchneider,
a student in EC 491 (2003): “In looking for some start-up capital for our
automotive related business, myself and my partner offered potential investors
future discounts through our business. In selling automotive parts, we had
accounts set up with distributors, accounts which could only be set up through
having a business license, tax numbers, and some negotiating, so the average
person off the street does not have access to these discounts. We set no
specific investment amounts, simply the most the person could afford. We kept
these contributed amounts a secret among the different investors as we offered
them all the same return. Therefore, in return for a fair investment, we extended
to our investors cost prices for all of their future purchases through our
company. The only limit we set on this agreement was that the investors’ annual
purchases could not exceed our company’s sales revenue from our average monthly
sales figure (not including cost purchases made from investors). The overall
idea was to provide our investors a very fair return on their investment, and
at the same time, these investors would promote our company. Why you may ask,
well the greater our monthly sales were, the greater the amount of goods they
could buy for themselves at a cost price.” Ed.: Basically, Craig and his
partner turned their investors into customers and their customers into
investors. Nice going.
27. Collectibles sales and auctions. Here is a new one. Michael Moshier put the
original version of his SoloTrek flyer up for auction on eBay, hoping a museum
would pick it up. It didn’t even fly but by January 12th, 2003, the bidding on
eBay had already reached $6.5 million USD: money he planed to use to fund his
Trek Aerospace startup. Cool.
28. Extended family savings and investment fund: an old style of acquiring
start up capital is to have the extended family contribute to a pool of funds
to help family members acquire or build businesses.
29. Vendor Take Back mortgages: typically used in real estate transactions, the
Vendor provides some or most of the financing for the sale by way of a (first
or even second) mortgage back to the Purchaser.
30. Sweat equity.
31. Investor syndicate or investment club.
32. Retainers (typical for consulting services or legal and accounting
services) and deposits on sales.
33. Collecting early and paying late (boosts cashflow in the short term).
34. Progress payments and deposits on contracts.
35. Advance ticket sales.
36. Becoming a reseller (this is big in the Internet age where you can set
yourself up for practically nothing as an agent to resell services such as
domain names or web hosting). There are a huge number of things that can be
resold on the Internet: many sites generate large revenues by reselling ads
powered by Google or other providers. Check out this silly site which generates
up to 8,000 so-called facts on Chuck Norris and got 18 million hits in December
2005. Really the purpose of the site is to generate clicks (by asking people to
rate the facts) which generates a new ad and maximizes revenues for the site’s
owner:http://www.4q.cc/chuck/. Or have a look at this site:
http://www.milliondollarhomepage.com/. Here the young person (age 21, based in
apparently wanted to pay for his tuition and so he created a million pixel home
page. You could buy an ad for $1 per pixel (minimum ten pixels) linked to your
site. He sold all 1,000,000 pixels so guess what? He got his tuition and a lot
more. I presume the ads are for a limited time so he also has the chance to
resell the million pixels over and over again. The site gets a LOT OF TRAFFIC.
Remarkably, this might be a sustainable business (a Personal Business For
40. Exploiting signage rights.
41. No money down, land speculation.
42. Using OPM (other people’s money).
43. Asset flipping.
44. Buying under power of sale (again, real estate related).
45. Buying distressed companies and turning them around.
46. Day trading.
47. Asset speculation.
50. Training and uniform fees (e.g., GradeAStudent.com required each of their
contractors to be Grade A certified before they could provide services to
clients and customers and get access to the billing system and the appointments
calendar (a system called GASnet). To be certified the contractors had to pay
in advance to take the course.
51. Pre-sales in real estate allows you not only to ask for cash deposits but
also may give you access to Bank or private lender financing. For example, if
you pre-sell 50% of your condo or townhouse project—you can usually qualify for
construction lending where, in essence, your Bank or private lender is
advancing you money to build the condos or townhouses on the basis of the
strength of the credit ratings of your customers (buyers) and not your credit
rating per se.
52. The same type of thing can help you a lot if you are a manufacturing
business: if you have a guaranteed supply contract with a credible client or
customer, you can often finance against that.
53. Land options: sometimes you can convince
a landowner to give you an inexpensive option to buy his or her land at a fixed
price at a later date. You can then use the time to set up a sale office and
begin pre-selling. As discussed above, you can then take cash deposits (which
are impressed with a trust in that the money doesn’t really belong to you until
you actually have delivered the condo, townhouse, single family home,
whatever), finance against Agreements of Purchase and Sale executed by you and
your clients, approach a Bank or private lenders for funding (often through a
mortgage broker), arrange for private equity lenders or other investors to
invest in your project, etc.
54. I recently learned about a new method of bootstrap capital from my
daughter, Jessica. One of her best friends lives in a single parent family. Her
friend’s parent is unable to work and lives on a modest income. However, every
year they are able to take a family vacation to a nice destination in a rented
van. How do they afford to do that? Bootstrap capital. They take with them five
other kids: each kid pays $250 for a week’s holiday: that’s a total of $1,250,
enough for a camping holiday and some neat adventures too. It pays for the gas,
the van rental, food and a few outings. The kids` parents contribute cash and
Jessica’s friend and her parent go for free but they provide the
opportunity. Everyone wins.
At the University
of Ottawa’s Telfer School
of Management, we are focused on the bootstrap entrepreneur. There are other
colleges and universities where the VC track takes prominence.
So self-capitalization is an important area of study and research.
If Canadian Banks had their way, they would probably do no small business
lending at all. If you go to the bank for a small business loan (SBL) of, say,
$350,000, you will find that: a) they need a massive amount of data from you
and b) they need an expensive infrastructure in terms of on-the-ground bank
managers, loan officers and back office types to approve your loan application.
If they could get away with it, they would probably choose to turn down nearly
every small business loan request and eliminate a whole cadre of Bank staff.
Other students tell me that they want VC funding. I believe that most
startups have about as much chance of attracting VC funding as they have of
winning the annual Ottawa Hospital Lottery and probably less.
First of all, most business startups don’t have the growth prospects to attract
Secondly, most startups are in industry sectors that don’t appeal to VC
Thirdly, most startups should be much further along in their development
before they go after VC funding, if they ever do. If your business has real cashflow
and real customers and clients, you are on a much more even footing with
respect to negotiating a fair agreement with VCs, if that is what you choose to
do. Finally, it is much more efficient for Canada if VCs fund more mature
companies that are at a stage where large capital injections are: a) less
risky, b) more inclined to be put to wise use by (now) experienced
So if you plan to start a business and you don’t want to give up control and
a ton of equity to VCs and Vulture funds, learn everything you can about self
capitalization—you are going to need it.
I have always believed that (most) debt is less expensive than equity but
many of my students view equity as ‘free’.
Let’s suppose you want to start that mini farm business we looked at above
and you need $7,500 to start it. The mini herb garden business, under certain
assumptions produces cashflow of $4,500 per year and a return of 58% p.a. (This
is an IRR, Internal Rate of Return.)
Now let’s say you are like me and know nothing about farming so you decide
to bring in a partner who does and you are going to give her, say, 1/3 of the
business and she is going to put up 1/3 of the startup capital or $2,500. You
can not only use the extra expertise but also the extra dough and since it is
equity, there are no interest or monthly repayments. Phew, you say.
Maybe she is a great partner but let’s assume as in many partnerships, this
is your idea, your baby and you are the one with the most enthusiasm. So after
giving you a few tips that you probably could have found on the Internet
yourself (like how to grow herbs organically, without pesticides, and not let
the bugs eat them all either), she kind of loses interest and you end up doing
most of the planning, planting, weeding harvesting and sales.
You become a bit resentful because you have to give her 1/3 of the annual
profits ($1,500) and it is bugging you that she is getting a heck of a return
($1,500 each and every year on her $2,500 investment) and not putting in her
fair share of the work.
Her ROI is obviously the same as yours: 58% p.a. (Don’t make the mistake of
thinking the ROI, Return on Investment, is $1,500/$2,500 or 60% p.a. Be a bit
more rigorous and use the IRR as a lifecycle approach to analyzing projects.)
Now let’s say you had to borrow this extra amount on a credit card instead
of getting it for ‘free’ from your partner. Many credit cards charge you 14% to
28% p.a. depending on your creditworthiness (which is what Banks determine
using your beacon score). Even at 28%, you are borrowing for much less than the
cost of your equity which is 58%!
So the advantages of debt are:
1. It is usually cheaper than equity.
2. You don’t have to put up with a partner.
3. Decision making is fast: your Board of Directors meets in a closet (i.e.,
you meet with yourself).
The advantages of a partner are:
1. If there is a problem in the business, you may have an extra pair of
hands around to help you deal with it (if the partner doesn’t throw up her
hands and bug out on you).
2. You have access to what you hope will be patient capital.
3. You hope she brings expertise that you don’t have to the table.
Most partnerships end up badly and you will have to buy her out, let her buy
you out, sell the business or shut it down. Now if in the above example, your
partner likes the returns she is getting and say she puts a 11 cap rate
(capitalization rate) on her share of the annual profits, then it will cost you
a LOT to buy her out.
Here is how it works:
Cap Rate = NOI/S.P.
where, NOI is Net Operating Income and S.P. is Selling Price.
S.P. = NOI/Cap Rate.
Therefore you are going to have to pay her:
S.P.(your partner’s share of the business) = $1,500/0.11 or $13,636.36.
You have turned a $2,500 problem into a $13,636.36 problem in a hurry.
a) don’t have a partner to begin with if you can avoid it;
b) use debt or bootstrap capital to fund your business because it will probably
be cheaper in the end;
c) understand that there is a higher risk with debt.
Debt is like the hare and the tortoise running around a track. Debt is the
hare. You are the tortoise. If you take on debt (especially bad debt like
credit card debt), your tortoise better be relentless and get around the track
because he is working all the time to pay off the debt as soon as he can. Once
the hare catches you (in a foreclosure or power of sale or bankruptcy), you are
Maybe instead of ending up borrowing the extra $2,500 from a credit card,
you could have got a loan from Farmers Credit or a government grant program to
grow more food locally or even gotten a pre-order from Whole Foods or a few
organic food shops in your area that included a down payment on their first
herb orders that just happened to equal $2,500. The latter has an interest cost
equal to zero and also gives you a secure feeling that once you start producing
herbs, you will have customers!
Negative Cost Labour
Sometimes, you can turn a cost into a negative cost. A former architecture
student of mine, Dominique Tonetti and her husband, Frank Dutton, are managing
to do that on their new project, Solisterra in Québec.
Dominique and Frank are building wonderful straw bale structures on a 150
acre property they own in West Québec (in Kazabazua) close to Ottawa. The lands are beautiful—abundant
wildlife, several lakes plus a huge variety of trees.
They are going to build off-grid cottages on their lands that will be rented
by the week to people who want to de-stress and live a simpler life. (Where do
I sign up?) Some of the things they are working on include: straw bale
construction, solar electricity, solar heating (for hot water [which I really
like]), solar ovens and green roofs.
Negative Cost Labour/Straw Bale Construction
They are determined to retain ownership of their property, not go into a
mountain of debt (and thus run the not insignificant risk that the bank or
finance company will one day own the cottages and the lands) and yet produce
seven or eight cottages, a rec hall and a retreat to compete with the best in
Eastern Ontario or West Québec. How will they do that?
First, they turned down ruinous interest rates from some predatory
financiers who were going to advance construction funds. Not only were their
interest rates punishing, they also required large fees—fees when they
originate the loans, fees when they provide a draw, even fees when you pay the
thing off with a permanent mortgage. And on top of that, Dom and Frank would
have to pay legal fees and appraisal fees. Every time they want a draw, they
would have to beg the appraiser to come out, then beg him or her for a decent
appraisal, then beg the loan company and lawyer for a draw that was enough to
pay all the darned fees plus their costs of construction (less the 10%
A friend of mine (another former student, Matt Nesrallah, who runs his own
financial advisor shop at Primerica) told me that the most powerful force in
economics is compound interest. This is not a new idea but it needs to be said
again here. If your repayments to a Bank or a credit card company or the IRS or
CRA compounds at a high rate of interest, you’re doomed.
So Dominique* and Frank decided to:
a) build the homes themselves thus reducing the cost of construction;
b) build only one unit at a time thus reducing their cash requirements further;
c) take a low interest rate mortgage on their existing home to fund what out of
pocket costs they do have;
d) lastly, Dominique has offered to train and teach people straw bale
In effect, she is running a school and can charge people for coming out and
working on her project.
They learn design from Dom, they learn construction techniques, they work
with their hands which can be therapeutic, they work in a lovely setting with great
people, they have fun, they feel like they are a part of something bigger than
themselves and they gladly pay for the privilege.
THIS IS NEGATIVE COST LABOUR.
Now how about that?
* Comment from Dominique:
It is a good story, it makes us sound more business savvy than we feel, but
it is indeed how we operate. A small correction however, Solisterra is 350
acres, 150 of which is the two lakes. The workshops go beyond straw bale
Since we needed extra arms and many people wanted to learn how to build
their own dream homes, we discovered that we could “sell” knowledge of: a)
timber framing (which is very easy to build when you know how), b) masonry
ovens, as well as c) installation of solar electric systems.
For next year’s unit, we are putting together a 10 workshop package (some
people really want to know every step from the foundation up) in a one price
deal. The great thing for us is that people become much handier by
participating in our workshops…
I almost feel guilty charging them when they become very useful…but not
quite! I have to remind myself that knowledge has a price. I learned all these
construction techniques the hard way. I had to perform many tests before I
could write specs (with a good conscience) to accompany my plans on previous
Thank you for thinking of us for this story.
Bootstrapping the Senators
Let’s look at another example where I have some direct personal
knowledge—the steps we took to secure a National League franchise for Ottawa.
Step 1 (Generate Idea): Driving down the Queensway in 1987 wondering what I
could do next, I asked myself what does Toronto
have that we don’t? (Ottawans constantly compare themselves to big brother
Torontonians). Ah, back came the answer: “They have a NHL team and we don’t.”
Step 2 (Apply Ingenuity): To clip the wings of any other potential bidders
arising locally, we secretly bought 600 acres of land for a new arena, rezoned
it, sold 15,000 PRNs (Priority Registration Numbers, basically giving people
the right to buy season tickets in the then non-existent franchise), signed 500
corporate sponsors and 31 original corporate sponsors to help us in our
campaign to BRING BACK THE SENATORS (a team that had played in the NHL until
1934 when they transferred to St Louis because of the deepening Depression).
Step 3 (Have Courage): The local media wrote a story the night before we won
the franchise that there wasn’t much hope for success for our bid.
Step 4 (Form Team): We had a superb group of young, talented and extremely dedicated
executives, all trained by me. THEY WOULD’T BACK DOWN.
Step 5 (Execute Well): The campaign was tightly focused on the only people
who mattered—the 21 voters (Members of the Board of Governors and owners of the
NHL Member Clubs) and the President of the League too.
It took a great team of unimaginably dedicated people to BRING BACK THE
I still remember an Ottawa Citizen headline a few days before we got the
Ottawa Senators franchise: “And the winners are … Seattle,
Of course, it was Ottawa and Tampa.
The night before we won the franchise, one of the voters (i.e., a member of
the Board of Governors) told me (at a NHL dinner thrown for the nine bidders)
with his face just centimeters from mine: “You’ll never, ever get a franchise
I can remember Norm Green, then Owner of the Minnesota North Stars, coming
over to my table and asking: “What’s wrong.” “Nothing,” I said. “Well, get that
schmucky look off your face, kid, and get out there and hustle.”
Good advice. Lydia Leeder, in Ottawa,
on hearing that comment from her spouse, Cyril later that night said: “You
can’t stop now! It’s just like the Canada/Russia series of 1972. Canadians
never quit. Everyone is running to their radios every half hour for an update …
We’re counting on you.” Now that’s pressure!
We did just that and in fact the last thing the Board of Governors saw
before they shut the door to consider the matter the next day at 8:00 am was my
nose and the faces of my whole team.
We never stopped.
At about noon that day, the pressure was enormous and frankly getting to me;
so I went for a run along the beach (this was Palm Beach in December- actually December 6,
1990). I returned at about ten to one and saw some of my team members waving
frantically to me. “What’s up,” I asked. “The NHL has asked all bidders to be
in their suites at one for an announcement,” said Connie Cochran. “What
announcement?” “They didn’t say.”
Without a shower, I changed into a suit. At one, NHL security took us down
to the basement of the Breakers Hotel, a huge antique of a hotel. Next to
rotting garbage and standing under dripping pipes, I turned to my colleagues to
say: “Fellows. This doesn’t look too good. You have done everything that you
could do. I am proud of you. If we have lost, we are going to thank the NHL for
allowing us to join this process, we are going to congratulate the winners and
then we’re going to have a press conference to announce- ‘we’ll be back’.”
Then NHL security took us up to the meeting room. Marcel Aubut (of the
Quebec Nordiques) gave Randy Sexton, a big hug: “Felicitation, mon ami,” he
said. We thought he was congratulating us on a good try!
When I went up to the front of the room and sat next to John Ziegler, I saw
the words: ‘The NHL is proud to welcome, as conditional Members under the Plan
of Sixth expansion, the cities of Ottawa … and Tampa.” It was a magic
Winners never quit and quitters never win.
(Footnote: After collecting myself for a few minutes, I asked Mr. Ziegler
what the final vote was and he told me with a nonchalant shrug: “It was
unanimous, 21 to 0.” About six weeks later, I did call the Governor who had
told us that we would never, ever get a franchise. He told me that his comment
was part of a plan by a few Governors. They told each bidder the same thing; it
was a character test designed to see how each bidder would react. Two of the
bidders stormed out; they weren’t successful. Only two bidders got up the next
day to continue lobbying until the last possible second—Phil Esposito (leader
of the Tampa
group) and us.)
Now is it possible to bootstrap a NHL expansion franchise that cost $50
million US to purchase. Well, the answer is a qualified yes.
The Ottawa Senators were supposed to be an accretive arrangement too. (Not
all good plans work out I am sorry to say. Oh well.)
Cyril Leeder, Randy Sexton and I dreamed up the idea of bringing back the
Ottawa Senators in 1988, after a pick up hockey game at the old Lyons Arena.
Cyril, in true CA-style, after hearing the idea, asked: “How much is an
expansion franchise likely to cost?” We all wrote down our guesses, which
ranged from $25m to a high of $34m (the latter being the number for a NBA
expansion franchise the year before.)
Our idea was simple—private money would buy the team and build the arena
(this would not be another SkyDome, which cost the Ontario
taxpayers at least $450m), the Province would build us an interchange (at a
cost of $30m) and the City of Ottawa
would use a Magic Wand to make sure it all happened.
Jimmy Durrell’s and Andy Haydon’s Magic Wand
Jim Durrell was Mayor of the City of Ottawa
and Andy Haydon was Chair of the RMOC (Regional Municipality of
Ottawa-Carleton) at that time. Our concept was that: a) we would buy 600 acres
of land for an average of $12,500 an acres (which we did), b) we would keep 100
acres for construction of the Palladium (aka the Corel Centre, Scotiabank
Place, Canadian Tire Centre which we did) and c) we would ask the RMOC and the
City of Kanata for a rezoning of all the lands causing the value of the
additional lands to increase from $12,500 to $112,500 per acre and we would
sell the additional, surplus lands (500 acres) for a profit of $100,000 per
acre or, hmm, $50m in total, which would then be shipped in a couple of Brinks
Security trucks to John Ziegler in NHL head office in NYC to pay for the
franchise. Ah, it was a simple plan.
From the POV of the City, it wouldn’t actually cost them anything—they just
wave their magic wand, et voila, the lands are rezoned. We make a $50m profit,
which we don’t get to keep, but instead we give it to Ziegler and he gives us
(a fairly ratty-looking) piece of paper for a NHL franchise* for Ottawa.
(* There has been a lot of air and ink about what the City gets from the
franchise being here but one thing I can tell you, when I traveled in the US in
the 1980s, no one knew anything about Ottawa and now everyone does. Some VCs
have told me that by having a world-class sports team here, we got on their
radar. Without it, they would question whether the ideas coming out of Ottawa were also
world-class. Hundreds of millions, billions, in fact, of investment money came
here, at least in part because of the Sens. Fair? No. But then life isn’t fair
Well, many of you may know the story—Liberal Premier David Peterson who had
approved much of our plan called an election two and a half years early, lost
to NDP Premier Bob Rae, whose government opposed the Palladium. We won the
battle to rezone the Palladium lands (100 acres) at the OMB but lost the war
(the other 500 acres remained unzoned for another ten years). We had an $80m
hole in our capitalization plan (yes, Mr. Rae declined to have the Province
build the public infrastructure (aka, the $30m interchange)) and I sold control
of the team to new owner Rod Bryden within two years. C’est la vie.
Large or small, there are thousands upon thousands of examples of Bootstrap
Startups. This is the way most businesses get started. And one can argue that
Bootstrap Startups are often ‘better’ than VC-funded startups
Better in the sense that: a) they have to put an enormous emphasis on sales
from the moment they begin; b) they have to have real customers and real
cashflow otherwise they are dead in a few months; c) they need to be more
creative and more adaptable to changes in their environment; d) they need to be
more efficient with what money they do have.
“Simply put, an entrepreneur is someone who can (creatively) do with a
dollar, what any fool can do with two,” Prof Bruce.
The Ottawa Senators formally returned to the National Hockey League on
October 8, 1992 after a 58-year absence; it was another great day for Ottawa. I was at ice
level at the old Ottawa Civic Centre when the team was introduced. The people
in that arena applauded those players—they gave them a standing ovation—for six
minutes. I realized that they weren’t really applauding the players, they were
applauding themselves. This City came of age that day—there was a feeling that
‘we did it, we did it together’. It was that special feeling that only comes
from being part of something greater than ourselves. Professional sports can do
that. But surely, we can add more days like that. It is a challenge for you to
take up. Carpe diem.
Let me give you a quote about the role of hope in human affairs, which
frankly does not get enough attention. Human beings need to have hope to live.
“Most of the important things in the world have been accomplished by
people who have kept on trying when there seemed no hope at all,” Dale
Build and Hold—The Difference between being Rich and Being Wealthy
I read in October 2004 that Ottawa-based QNX Software Systems was sold to
Harman International for $138 million USD. I know that some of my students and
clients read it too and they will be thinking build something and sell it for A
LOT OF MONEY. The only problem is that most of them might not read to page 2 of
the Ottawa Citizen article (October 28, 2004) which says: “For Mr. Dodge, 50
and his partner Gordon bell, 49, the deal marks a vindication for their effort
to build a profitable company without venture capital over 24 years.” (The
emphasis is mine.)
I am not saying that you should never sell your business but what I am
saying is that it takes time to build a great business.
People who build and sell quickly are known as flippers. Most of them flip
‘til they flop. If you have built a successful business, you have climbed Mount Everest twice. You have captured lightning in a
It is so hard to build a successful business, it takes so long to do it, you
use up so much of your lifetime storehouse of luck doing it, that you should
think very carefully before you sell it. Successful entrepreneurs often think:
“Well, I did it once, I can do it again and again”. Bad news, people, often you
If you have built a great business, why sell it? What exactly will you do
next? Start again? Why go through all the heartache and risk again when you
already have a fine business you built yourself?
I didn’t feel that an essay on Building and holding onto your business (and
helping to creditor proofing yourself at the same time) would be complete
without mentioning this trap that so many of us fall into. It’s called hubris.
One of the best ways to get out of creditor hell is never to get into it in
the first place. One of the ways to do that is to not sell your successful
business. In almost all cases, a successful business will sustain you and your
family and your employees and your suppliers and your other stakeholders far,
far better than cash in the Bank.
Let me tell you another story, this one about Sean (not his real name). Sean
was a by the bootstrap kind of guy and he had one great thing going for him—he
had charm. He was a born salesperson and in the game of entrepreneurship, if
you can’t sell, you’re out of the game before you can begin. (The three most
important things in entrepreneurship are SALES, SALES, SALES.)
Well, one day about fifteen years ago, Sean found himself working in the
fish department for a large supermarket chain; he was wearing one of those hair
net things and he was developing arthritis in his hands from the cold and ice
he was constantly exposed to. He and his spouse, Freda, had their first child
(of what would eventually be a clan of three kids).
Sean thought to himself: “I can do better than this.”
The next day he went out and bought himself his first computer (never having
even booted one up before) and started an advertising and promotion business in
his basement with nothing other than guts, charm and a high school diploma. (I
have changed his industry too to protect their identity. I apologize to my
I met Sean one day, about two years after he started working out of his
basement, and he convinced me to move our entire advertising and promotion
account over to his company. He was that good. I certainly asked him about his
bona fides. Could he produce the volume we needed? How was his Quality Assurance
program? Yadda, yadda, yadda.
I didn’t know until years later that this was his big break—it allowed him
to finally move his business out of his basement, buy more equipment, hire
more, better people, etc. But when he told me, we laughed about it together and
I was doubly glad—glad that he was a success and glad that he didn’t let us
A few years later, Sean called me out of the blue. He had an offer to buy
his business from a larger competitor for TWO MILLION DOLLARS IN CASH. I told
him to slow down and think about it a bit more. I asked him a few questions.
How much are you taking out of the business? About $200 to $250k a year. How
much do you pay Freda to do your books? Oh, about another $50k. Do you have any
company cars? Yeah, reckon so—two of them in fact.
In total, Sean and his family were getting about $300,000 a year from the
Company, year in year out—it was a sustainable number.
I asked Sean, do you know what interest rates are on term deposits right
now? No. Well, they are about 1.7% p.a., which means that even if this sale was
tax free, your income from your two million dollars is going to be 34,000 bucks
a year and every year inflation is going to eat away your principal. Now why
would you give up $300,000 a year and a business you love and built yourself
Let me quote actor and comedian Chris Rock:
“Shaq (Shaquille O’Neal who plays in the NBA) is rich but the man who signs
Shaq’s pay check is wealthy.”
Chris Rock got it exactly right. You can get rich by winning the lottery,
becoming a NBA Star, speculating, asset flipping, gambling, picking the right
parents or prospecting for gold, diamonds, nickel, whatever, but you can’t
become wealthy doing any of these things.
Wealth derives from control over a factor of production, a license, a
franchise, a territory, a concession, some IP (Intellectual Property like the
secret formula for Coca Cola or the 11 secret herbs and spices that the Colonel
used to fry chicken), a competitive advantage, a comparative advantage,
property ownership—anything that creates a sustainable, repeating and renewable
income stream; it is your ‘pixie dust’—the magic that really makes your
What was the grant by the Crown of exclusive fur trapping and trading rights
to the Hudson Bay Company in Rupert’s Land (all the lands [all 3.9 million
square kilometres of it] that drained into Hudson’s Bay) in 1670 worth to that firm?
Well, they became one of the longest-lived corporations ever known—in
continuous operation to this day. Their great wealth and economic and political
reach was based not only on their fur trading rights concession but also on
their control of real estate—they later came to control some of the most
valuable sites in many Canadian cities.
Long term wealth is often based on these types of privileges gained through
The Fred Harvey Company controlled the Mule Train concession to the bottom
of the Grand Canyon for many years and was an
enduring source of monopoly profits for them. As discussed above, my wife and I
had an opportunity to take a couple of mules down to Phantom Ranch and stay
overnight there in one of the most memorable trips of a lifetime. The Canyon is
a sacred place but the only company with the right to take visitors down to
Shangri-la by mule was the Fred Harvey Company. Waiting times for a place on
the mule train is over one year. Think about it—no competition by fiat (i.e.,
by dictat or edict of the National Park Service), long waiting times, total
price setting control, a seller’s market, what more could you want.
If you are the Emperor of Japan, head of the House of Windsor (aka, the
Queen of England) or head of the Holy Roman Catholic Church (aka, the Pope),
you have a different type of concession but ones that have proven to be hugely
long lasting. But maybe they aren’t quite so different after all—their fortunes
are based on real estate as well as hereditary or faith based positions of
power. The Queen is a huge rentier (basically, a landlord with residential and
commercial properties as well as broad acres for lease); the value of the
Emperor’s estate in downtown Tokyo (the Imperial Palace) is incalculable and
the Church has developed one of the greatest portfolios of property on the
planet by colonizing some of the best sites in every city and town where the
Church was represented. Astutely, they almost never sell their property,
calculating, correctly, that land leases of 49 or even 99 years were the right
way to produce income for an institution with a time horizon measured in
millennia. They can enjoy income from their properties without having to give
up long term control over their lands. After the completion of a land lease,
the property reverts back to the Church and the process begins all over
again—perfect inflation protection and, since they are tax exempt too (in most
instances), the Church has one of the most stable financial platforms
imaginable. In my view, the Queen seriously eroded the long term stability of
the House of Windsor in the last decade of the 20th Century by voluntarily giving
up the Crown’s tax-exempt status in an attempt to appease her critics. It was
very democratic of her but certainly will have adverse consequences for the
future of her heirs.
There is no better business to be in than the Government business—they keep
all the best businesses for themselves. For example, there is no higher margin
business than the Casino or lottery business and governments everywhere seem to
either keep the business and operate it themselves (as they do in Canada) or
regulate it and tax it heavily. They dole out other choice concessions to their
friends or influential people who can help them get re-elected. If their costs
go up, they simply increase their prices (aka, taxes) and, if you don’t pay the
higher prices, a) you have no where else to go for service anyway (e.g., for
your water and sewer connection) and b) they can force you to pay either by
taking away your property, your liberty or both.
Governments love the liquor business too—again, either they control it and
operate it themselves or they simply control it and hand out concessions to
private operators and tax them to the max. Yesterday’s bootlegger is today’s
Just how important are these types of ‘concessions’? Well, look at what the
professions do. Professional Associations (for Architects, Engineers, Lawyers,
Accountants, even Real Estate Agents, etc.) are based on the tradition of
guilds made up of artisans who band together to: a) raise prices and b)
restrict or otherwise raise barriers to entry for newcomers. They always cover
their tracks (it’s called political cover) by claiming that they are raising
standards to protect the consumer and the public interest which no doubt they
are doing at least in part. Not to be too facetious about it but self-interest
is a top consideration for these organizations. Unions (like, say, the NHL
Players’ Association) perform exactly the same function for their members BTW.
the Canadian Radio, Television and Telecommunications Commission, the CRTC, was
formed to dole out concessions to industry players in one of the most
profitable sectors of the Canadian economy. Their so-called mission is to
protect Can-Con (Canadian Content, aka Canadian Culture) but there is no doubt
that the regulator of Canadian airwaves (i.e., the CRTC) has been captured by
the major firms that are ‘regulated’ by the Commission. The proof is that when
new licenses are issued, they invariably go to established players. New
entrants need not apply. The final proof is just turn on any Canadian TV
channel in prime time so you can watch Friends reruns, Everybody Loves Raymond
and see Will ‘Fresh Prince’ Smith in his endless turn as a hip teenager in
Now let’s just look at some numbers; let’s say someone controlled the early
Beatles catalogue (say, someone like Michael Jackson, now the heirs of MJ). Mr.
Jackson is reputed to have bought the catalogue in 1985 for $47m (but he lost
his friendship with Paul McCartney along the way). By 1993, MJ’s company was
reportedly earning $30m from it (albeit, MJ had added other songs by other
artists by that time but let’s ignore this for the moment) and it was estimated
to be worth $300m at that time. This yields a cap rate (capitalization rate) of
10, which is pretty typical for this type of privately held asset. No one knows
what kind of income stream he gets from this now but it has a rumored value of
$1 billion today. MJ still owned 50% of it, the balance was owned by Sony.
With a cap rate of 10 and given that MJ owned half of the catalogue, we can
guess that MJ got $50m a year in income from his ownership. Plus the Beatles
made a huge comeback—just ask my daughter, Jessica, who when she was 12 only
wanted Beatles CDs for her birthday and knew just about every word to every
tune the Beatles ever recorded. So it wouldn’t surprise me if MJ’s income went
up every year from this source. This is called wealth. However, let’s say that
MJ needed some quick cash and sold his interest to Sony for $500m. Now MJ would
have been rich (for a while) from selling his interest in the catalogue but he
would no longer have been wealthy because he had lost the ability to renew his
wealth every year by producing an income stream from control over this
particular factor of production.
But what’s that you say? He could have invested the proceeds in T-Bills,
Muni Bonds and GICs (Guaranteed Investment Certificates). Sure he could, but
they produce puny 1.7% to 4% rates of return. If MJ had paid $100m in taxes, he
would have been left with $400m, which would have given him an income stream of
$6.8m to $16m a year with no inflation protection. I mean if MJ continued to
control the catalogue, he could always have increased the price (aka royalty)
paid for each tune if inflation takes off and starts to bite into his revenue
stream. But even ignoring inflation, why would MJ trade an income stream of
$50m a year that made him wealthy to become a remittance man getting $6.8m to
$16m a year? MJ turned down many offers to sell; presumably he understood the
Chris Rock difference between becoming rich and being wealthy*.
(* Somehow I doubt whether Lisa Marie Presley ever read this piece. In
December 2004, it was announced that Lisa had sold her father’s image and name
as well as 85% of Elvis Presley Enterprises Inc. to Robert Sillerman-controlled
SFX Entertainment for a reported $100 million, which included some stock in a
new SFX controlled business. So not only does Lisa no longer own, control and
direct a valuable franchise (her father’s estate, which brought in $45 million
in 2003), she didn’t even get all her compensation in the form of CASH. As any
entrepreneur knows, cash is KING. (Pardon the pun, Elvis). Now compare that
with J.K. Rowling’s absolute and tight control over her creation (the Harry
Potter series)—not only the publishing rights but also the film rights and
other media rights as well. It has made her the richest woman in the U.K., worth
more the Queen).
Did you know that many, maybe most, lottery winners blow their entire wad in
less than five years? By that point, their spouses have left them, they are
alienated from their old friends, they have got a whole new set of ‘friends’
who are only around while the money lasts and they don’t even have their old
job to go back to. Many of them have picked up nasty habits along the way like
taking drugs. It’s absolutely amazing how many of them end up in bankruptcy.
They are much worse off for their ‘good fortune’.
People are meant to work. They are built for it. If you have built a good
business, control a great concession, own a valuable franchise, possess a
‘secret’ formula, whatever, hang on to it, fight for it*—it is your security
against creditor phone calls in the middle of the night asking you: “Mr. Jones,
when can we expect payment?”
(* I was doing some work recently with a mega real estate agent. He is a
salesperson for a large brokerage and is vying for one of the top national
spots in terms of sales volume. He has developed a team approach to selling
residential real estate and will sell more than 120 homes this year (2004).
I was surprised to learn (and it surprises me that after a great deal of
experience with the real estate industry that I didn’t already know this) that
he has developed a long term and sustainable competitive advantage. Remember,
this is an industry that has no minimum educational requirements, not even a
high school diploma is required to get your license. After successfully
completing a three phase course in Ontario,
virtually anyone can become a real estate agent. So the ‘barrier’ to entry is
pretty low. (If you can’t be real estate agent, you can always be a
homebuilder. If there is absolutely nothing else you know how to do—not even
sell real estate or used cars, then just pick up a hammer and saw and become a
There are more than 40,000 real estate agents (more properly called ‘sales
representatives’; technically, ‘agency’ is a term reserved for the relationship
between the broker and the client.) in Canada. Many of them are very hard
working and smart people. How in the world would anyone ever develop a
sustainable, competitive advantage in such an industry?
Well, first of all, John (not his real name) treats his position as a
salesperson as if it were a stand alone business. It is my personal belief that
every salesperson in every industry should consider himself or herself as a
John has a business model for himself and his team of sales assistants. He
views his broker as one of his suppliers—the broker supplies John and his team
with office space, holds his license, manages the trust accounts, pays the
phone bill and keeps the lights on. He doesn’t really expect much more from his
broker although he counts on the firm (which is a nationally known company) to
burnish its reputation so, at a minimum, his association with the firm is not a
net negative. Trust in this business is hard earned, important to his success
and easily lost. But what freedom—you don’t have to worry about keeping the
lights on, paying the phone bill, staff or what have you—you get to concentrate
on your own core competency (i.e., selling) and there is no upper limit on what
you can make. If more people thought this way and they treated their sales as a
personal business for life (PB4L), then we would have a lot more high
performance and happier sales reps.
As a supplier, the Broker represents John’s major COGS (Cost of Goods Sold),
taking a 30% bite out of his commissions. John is responsible for his own
marketing and sales, personnel selection and HR policies as these relate to his
By thinking strategically about himself as a separate business unit, John
and his team have experienced tremendous sales growth. But all of this would
not have been possible without a bit more ‘pixie dust’—John has spent the last
15 years ‘farming’ a specific geographic area—he now controls more than 20% of
all listings and sales in ‘his’ area.
Now I realize this is an old real estate trick—i.e., concentrating your
marketing effort in one target area. In the real estate business, listings are
everything. If you control a listing, then buyers or buyers’ agents have to
come to you. Eventually, if you control enough listings within a designated
area (probably around 20%), you become the market maker—sellers have to come to
you to get their properties listed and sold because you have so many buyers
coming to your (already) listed properties that if one isn’t just right for
Harriet and Albert Smith, you probably have another one that is just perfect
John has so many of his signs in his designated area that: a) it discourages
other agents from trying to set up (poach) in that neighborhood and b) people
who want to list and sell would be think twice before listing with anyone else.
The awful thought in the minds of potential buyers if it isn’t listed with
John’s team might be: “What’s wrong with this house?” and that is the kiss of
death in residential real estate. Perception is everything.
It turns out that farming a neighborhood and becoming its market maker are
sustainable competitive advantages in an industry that really shouldn’t have
any, given its fundamentals. So think about it—it took John 15 years of
incredibly hard work to get to this position. He sells over $30 million worth
of homes a year. He does this with an average house price still in the
$200,000s as compared with other agents in larger, wealthier markets where
average home prices are in the $700,000s or higher and he still manages to make
it into the top 1% of agents in his firm. Now if decides to cash in his chips
and sell his PB4L, what would he get for it? Well, nada, nothing. That’s why
it’s called a Personal Business for Life.
Postscript: John could, of course, explore a way to perhaps pass on the
value he has created. He could take his broker exams and set up his own shop.
In that way, his clients’ loyalty would be to the Brokerage (his Brokerage) and
not necessarily to John. So when it comes time to sell, John has (maybe)
something to actually sell—the Brokerage’s client list and existing listings.
But there are obvious problems with this approach—a) the clients may not port
over to a new, unknown and untested Brokerage, b) maybe after John retires, the
clients that have followed him to the new enterprise might drift away because
they followed John and like and prefer working with him and c) having a
national brand is important in building trust amongst clients and trust creates
sales. Not having a well-known brand could then crater John’s sales. I am not
sure that there is any simple solution to this problem because surely one of
the objectives of entrepreneurship is to create something that has a life
beyond your own; in that way, you would have created something that can make
money for you ‘while you are lying on a beach’.
For real estate salespersons and entrepreneurs, this remains a challenge
that requires more thought. What John has created, so far, is a PB4L that
remunerates him richly. This is only half the equation in entrepreneurship. He
and I haven’t (yet) solved the other half and, unless we do, what he has done
is basically create a J.O.B. for himself, albeit, a highly paid one. Whatever
John does though, he should clearly and doggedly keep what he has so dearly
created—Build and Hold, Friend.
Innovate and Execute
Let’s return to the ten things you need to do to create a successful PB4L.
Let’s work through the list, one at a time.
Selecting the Right Idea
If you ask me, the big idea is LESS important than good execution which
obviously includes staff training. Most of my students think that the big,
NEVER BEFORE TRIED, idea is most important but there are lots of companies that
do very well with a good execution of fairly mundane things.
I am pretty sure that the only thing that is in infinite supply is ideas;
numbers, for example, represent an idea and they are infinite. There are
probably more than 25 million smart Americans in their basements at any one
time trying to come up with the next big idea (like, say, Google). Ideas are
being generated in huge volumes; that tends to suggest, in economic terms, a
surplus of ideas while the skills to implement them are in much shorter supply
and, hence, the latter will generally attract a higher price.
The market for new ideas, such as it is, tends to put a low price on them
(just try to sell your BIG IDEA at a business model stage and you will see: a)
how hard it is to do that and b) just how little you will get for it).
Obviously, a startup that combines some type of innovation with good execution
is better off than one with just sound execution. Fred Smith, when he started
Fed/Ex, brought the hub and spoke system to the overnight package delivery
business, essentially creating that industry.
Before that, it was thought to be an impossible challenge—if you had 60
cities as both origins and destinations in your US network that would have
meant that you have 1,770 unique pairs of cities ((60 x 59)/2) and you would
need to make 3,540 overnight flights to connect them all, an obvious
impossibility. If you had instead five hub airports within easy trucking
distance, you would have ten unique pairs of cities and, hence, could get by
with just 20 overnight flights to connect continental USA …
However, most successful startups do not create new industries or are not
necessarily first movers. Google wasn’t the first search engine; however, they
did bring significant innovation to the table including: neutral search
rankings, search rankings that reflected traffic loads on and links to a site,
paid search links and auctioning off of paid search links. GradeAStudent.com,
now GradeATechs.com, was not the first at home computer repair service but
their execution was good and they used a back end system (GASnet) to automate
their appointments and their billing systems.
Creating Business Models for the 21st Century
Digg.com’s founder, Kevin Rose made $60 million in 18 months. Kevin was just
29 years of age so there is still time for you!
A Happy Kevin Rose
While I do think great execution is really important, having some type of
innovation in your business model can help you to create a sustainable
advantage; i.e., you need to have some type of ‘pixie dust’ or differentiated
value in your organization’s business model. This creates a franchise or concession
for you that is hard for others to copy.Let’s look at the Digg.com model. What makes it different? What is its
differentiated value?1. It is a new model for a newspaper uniquely adapted to the Internet.
2. It is not simply the online version of the New York Times or some classified
advertising page transferred to the Internet.
3. It is a digital community made up of a fairly homogenous demographic: 80%
are male, mainly young techie readers.
4. Readers are also contributors.
5. Readers dig up interesting stories from all over the web and post brief
synopses to the site and links to them whereupon other readers vote on them—the
most popular ascend the page.
6. The site harnesses the competitive instincts of the readers/contributors to
compete to see whose story will lead.
7. The site works because of its homogeneous demographic—contributors only post
stories that will be of interest to the group.
8. The site is dynamic—leading stories change by the minute or hour.
9. Digg.com’s cost for headline writers = ZERO.
10. Digg.com’s cost for journalists = ZERO.
11. Digg.com’s cost for editors = ZERO.
12. Digg.com’s cost for distribution = ZERO (at least, the marginal cost is
practically zero).This is a lot of pixie dust. I think Digg.com is important for another
reason—I believe that it is important for communities that are working together
to be reading the same things, to share a common culture. If you think about it
for a moment, many of the communications you have in a given day are made much
easier by possessing a common culture; you don’t have to explain where you are
coming from and the context of what you are saying in every conversation you
have.Now the innovative nature of Digg.com would be pretty useless without good
execution so creativity is a necessary condition for the kind of success Mr.
Rose has had, though not a sufficient one.
Add Differentiated Value, Innovation and ‘Pixie Dust’To build sustainable business models, you need to have control over some
type of ‘factor of production’. When my wife and I took the mule train to the bottom of the Grand Canyon to visit Phantom Ranch, I realized how
valuable the concession was to operate the service. First of all, it’s a
monopoly service. Second of all, it operates in one of the seven wonders of the
world, a sacred place. Thirdly, there is practically unlimited demand– you need
to book ahead many months or you won’t be going.
Phantom Ranch Canteen
How would you like to control the bridge from Windsor
to Detroit which in the first 11 months of 2005
carried 8.9 million vehicles and is one of North America’s
most congested choke points? And every one of those vehicles paid a toll to
Manuel Moroun’s company. Now it appears that Mr. Maroun has negotiated a 90
year agreement with the Wayne County Port Authority to build another bridge.
The Port Authority is rumored to get a 2.5% royalty. Sheesh. That means that
Mr. Maroun gets 97.5%. Seems like a pretty good deal for him.
Business models that work need to have some kind of differentiator; some
type of ‘pixie dust’, the magic that makes a business work. For a National
Football League franchise, it is the right to operate an exclusive franchise
within a defined geographic area and exploit all the revenue rights within that
area– tickets, merchandise, suite rentals, sponsorship, signage, parking, etc.
and to share in national television revenues.
Most entrepreneurs who don’t have some type of value differentiator either
can’t build sustainable businesses or the ones that they do build produce no
more value for them than if they just went out and got a JOB.
The role of an entrepreneur, in my view, is to build a business that creates
more value than that, one which can take on a life of its own– i.e., survive
the passing from the scene of its founder or make money for its owner while
she/he is lying on a beach. The latter is the preferred option, obviously.
A spa, for example, might have some pixie dust because of its high end location
or because it has some highly sought after hair stylists or because it has some
sophisticated software that runs its appointment calendar and inventory of
products and reverses out some of the work to its clients (e.g., they can self
A friend of mine, Rob Hall, runs Pool.com, a business that revolutionized
the backordering of domain names. Instead of paying $60 to backorder a domain
name that may never delete, Pool.com allows you to register your backorder FOR
FREE. You only pay if Pool.com is successful in getting the name for you. Guess
which site gets most of the backorders now? (BTW, over 5,000 dot-COMs delete
Pixie dust/value differentiation– think about it, see how you can add some
to your business and watch your revenues and margins grow.
Creating a Compelling Value Proposition
Demonstrating your value proposition from your client’s point of view is a
powerful tool in sales and I don’t care if you are selling vacuum cleaners, architecture
services or hockey tickets. Clients and customers don’t really care what cool
technology you are using or incorporating in your product or service or what,
in general terms, it can do. What they want to know is, what can it (you) do
for me? And usually, that means, what can it (you) do for my bottom line?
Recently, I ran into Yoga Specialist, Heather Moore, at Mountain Goat Yoga
Centre in Kanata.
Heather is in her first year of training Ottawa Senators players who are trying
Yoga for the first time and I wanted to know how it was going. She told me that
the European players, especially her Russian players, were really into it. They
were seated at the front of the class. Some of her North American players
tolerated it and some thought Yoga training is for sissies.
She thinks things will go better when they get their own Yoga mats with
their names on it (she admitted that she wasn’t the biggest hockey fan before
and didn’t know all their names). Knowing their names will mean she can call
out recalcitrant players and encourage others.
Yoga uses your own weight to improve your flexibility and core strength and,
at advanced levels, is hellishly hard. It makes sure oxygen gets to all parts
of the body and promotes faster healing. It gets stress levels down and, if you
don’t think stress levels are high for professional athletes, you don’t know
much about sports. How would you like your on-the-job performance rating done
every day and on the front page of your local newspaper too?
More core strength, more flexibility, greater agility, better balance,
faster healing and lower stress levels are sure to be good for hockey players.
They need tremendous levels of dexterity to play in the National League. They
need strength too but not brute strength like NFL players do. Long lean muscles
will beat muscle mass in the NHL.
It turns out that, in all probability, a very small investment in Yoga training
will result in very large benefits for the Sens by reducing the number of
player days lost to injury.
(For an investment of just over $7,000 in Heather’s Yoga instruction fees,
the Sens reduced team injury costs by over $350,000 in the 2006/2007 Season
according to my rough calculations… a pretty dram good ROI.)
See if you can adapt it for your product or service or create one like it
from scratch. Try to show how one single customer or client benefits in terms
of cold, hard cash by using your products or services…
There are other benefits too for the Sens*. For example, if the team earns
more points during the regular season and, as a result, attracts more fans,
revenues will increase. Further, if the team has, say, one more home playoff
game as a result of a stronger, healthier team then benefits from Yoga training
(* The year the Sens started doing Yoga they also went to the Stanley Cup
And lastly, hockey players are human beings so reduced
injury means reduced human suffering, and that is a good thing…
Self-capitalizing (Bootstrapping) the New Enterprise
I have felt for a long time that VCs are heading in the wrong direction;
they should NOT fund startups. Rather, they should wait until startups have
proven themselves in the marketplace. It’s kind of like watching for tall
shoots in a field of grass. Those are the ones they should fund. It’s better
for VCs, better for the national economy and, interestingly, better for
It’s better for VCs because they will fund more winners and fewer losers and
generate better returns for their investors. This, in turn, will attract more
capital to the industry which is good for innovation overall. It’s better for
the national economy since careful rationing of scarce capital will provide
higher overall growth rates. And finally, it’s better for startups, in my
opinion, to focus on: a) building a sound business model, b) self (bootstrap)
capitalization, c) using smart (guerrilla) marketing to capture customers
inexpensively and d) generating real cashflow from real clients and customers.
The founders of these businesses will find it much faster and much less
frustrating to find customers first rather than spending nine months or more
hoping to attract VC funding or going after government grants. They will also
get help from clients in other ways such as designing the final product or
service. It’s like a war plan—as soon as your contemplated business model comes
into contact with customers, it will change; they will force changes that YOU
CAN NOT PLAN FOR.
Finally, the founders of these businesses will get to keep more of the
equity in their businesses if they do a deal with a VC firm later when their
business is more mature and, frankly, they are more mature. Nothing gives you
more leverage in negotiations with VCs than the fact that you have enough
cashflow to fund the business without them.
Is lack of access to capital really the main barrier to entry for most
entrepreneurs? I believe that the stated lack of access to capital by many
would-be entrepreneurs is more of an excuse than anything else. Here is my
(absolutely unscientific) bar chart of what I think are the main sources of
capital for startups. (I leave it to a future grad student to prove it or disprove
Home Equity Loans
Soft Capital #
Deposits, Retainers ##
Government Grants/Tax Credits
Patents and Royalties
# Mom, Dad, Rich Uncle Buck, co-guarantors
## Plus Progress Payments and Draws
### Investment by competitors, near competitors, future clients and future
### Employee Stock Ownership Plans
This is just my experience talking—who knows I may be wrong but most
entrepreneurs are, by definition, people without money. Again, in my
experience, people with money are not entrepreneurs, they are called ‘old
money’ and old money anywhere, tends not to do very much—it sits around
collecting coupons not starting high-risk new enterprises.
I always laugh when my students in entrepreneurship at the Telfer School of
Management at the University
of Ottawa go to a bank
for the first time and ask for a loan to star a business—Canadian banks only
want to lend to people with collateral; i.e., people who already have money. It
took 2006 Novel Peace Prize winner Muhammad Yunus of the Grameen Bank to
realize that a bank’s real job is to lend money to people who need it—a
completely novel thought, it turns out.
Dr Muhammad Yunus, Nobel Peace Prize Winner 2006
Dr. Yunus also realized that the way out of poverty for the vast majority of
people on this planet is to become (at least at first) micro entrepreneurs. In
fact, Grameen Bank lends on a priority basis to people who have the greatest
need and the least money! And you know what? Their loan loss ratio is tiny and
they make a profit too.
It takes very few bank resources to approve a home mortgage, give out a
credit card or make an auto loan. Banks think nothing of approving a $350,000
home mortgage—if your credit score (your Beacon Score) is high enough—in
minutes. But go to the bank for a business loan of $100,000 and you will find
that: a) they need a large amount of data from you and b) they need an
expensive infrastructure in terms of on-the-ground bank managers, loan officers
and back office types to approve your loan application. I believe if it weren’t
for the fact that successive Finance Ministers lean on the Chartered Banks in Canada, they
would choose to turn down every small business loan request.
Other students will tell me that they want VC funding. I believe that most
startups have about as much chance of attracting VC funding as they have of
winning the annual Ottawa Hospital Lottery and probably less. First of all,
most business startups don’t have the growth prospects to attract VC funding.
Secondly, most startups are in industry sectors that don’t appeal to VC funds
anyway. Thirdly, most startups should be much further along in their
development before they go after VC funding, if they ever do.
If your business has real cashflow and real customers and clients, you are
on a much more even footing with respect to negotiating a fair agreement with
VCs, if that is what you choose to do. Finally, it is much more efficient for Canada if VCs
fund more mature companies that are at a stage where large capital injections
are: a) less risky, b) more inclined to be put to wise use by (now) experienced
So if you plan to start a business and you don’t want to give up control and
a ton of equity to VCs and Vulture funds, learn everything you can about self
capitalization—you are going to need it.
Use Smart Marketing (Guerrilla Marketing and Social Marketing)
You have to give credit to KFC for some terrific Guerrilla Marketing. I
realize that GM is all about ‘substituting brains for money’ in the marketing
wars but KFC used brains AND money in this.
To tackle households that are zapping their ads using TiVO or their PVRs, KFC
ran an ad with a hidden message that could only be deciphered if you play it
back in slow mo. If you could figure it out, you could then go to KFC’s website
and get a coupon for a free sandwich. The traffic on their site went up by 40%.
(Business Week, April 17, 2006).
So they got people to watch their commercial (over and over again), boosted
traffic on their website AND in their stores. I still think this example meets
the test of what is (and is not) GM since you could look at it this way: how
much money would they have had to spend in conventional marketing to get this
kind of boost in terms of CPM (thousand pairs of eyeballs on their marketing
message) and customers in their stores?
There is another form of GM that is taking hold today too—a huge expansion
of social marketing.
In the past, most GM has been about some kind of stunt that attracts the
attention of the established media—they hear of a neat story and it then gets a
lot of play on the local or national news, in the local newspaper or gets you a
few interviews on radio. This is called ‘earned media’. Nothing wrong with
that—you can certainly do a lot more with earned media than a ton of paid
But social marketing is playing a much bigger role in helping startups grab
attention and market share. A former student of mine, Ryan Anderson, former
Director of Communications at FuelIndustries.com and now owner of Fat Canary
Communications, gave a wonderful lecture on the power of social marketing. Ryan
uses the term ‘Social Startup’ to designate an enterprise that uses social
marketing to get traction in its marketplace.
This is not to be confused with a Social Enterprise; the latter can be a
not-for-profit, a charity or a NGO (Non Governmental Organization) that
performs good works. They too can use social marketing to further their goals.
You can read more about social marketing on Ryan’s blog at: http://www.ryananderson.ca/.
In simple terms, the Internet has changed the media equation—instead of
limited bandwidth (a few TV channels, a few newspapers and a handful of radio
stations in most local markets a generation ago), today we have millions of
bloggers, Twitter users and Facebook or MySpace profiles plus hundreds of TV
Social marketing allows you to disintermediate the established media—to go
around them to talk directly to and with your customers. I build my own PWSs
(Personal Web Sites (it shows)) but at least I disintermediate the techies—I
can communicate directly with my students, clients, friends. There isn’t much
in the form of two way communication because I am so pressed for time. But
social marketing really requires that you should build-in a way for a
conversation to take place not only between you and your audience but between
audience members as well.
An example Ryan used in his lecture demonstrates the power of social
marketing—a small South African winery (BTW, it makes good wines, otherwise
this wouldn’t work and, in fact, would probably result in reverse marketing if
the wines actually sucked) sent a case of their wines to an influential blogger
in California and told him they wanted to sponsor 100 Geek Dinners in Santa
Clara County—no strings attached. They didn’t have to blog about the company or
their wines, they just wanted people to try them.
He wrote about the offer on his blog and the winery sent out 100 cases of
their wines. Even though they didn’t ask for it, they got huge exposure on
blogs everywhere in Nocal.
Their sales went up by a factor of six (!) in less than two years. The total
cost for the campaign—around $40,000. That represents less than half a second
of the cost of a 2008 Super Bowl ad. But even assuming that the NFL and its
broadcaster would give you a 30 second Stupid Bowl ad for $40,000 (trust me
they won’t), would it have resulted in a 500% climb in sales? I doubt it.
Social marketing (in this case, harnessing the power of the blogosphere) is
about engaging your customers in a dialogue, having a two-way authentic
conversation with them, listening to them and making changes as you learn from
the conversation. Ryan told us another quote: “If people talked to people,
the way that marketers talk to people, they would punch you in the face!”
(Note: Ryan said that he doesn’t hire anyone who doesn’t have their own
blog. He told our class that a CV is fine but it is pretty static. A Blog that
you have been keeping for a few years tells him a whole lot more about you. Are
you smart, creative, hard working, have good values, etc. You can get a free
blog and set up one for yourself in less than a minute, so do it! I use
WordPress.org but you can find many sites that will help you with this.)
Mass Customizing Products and Services Using the Internet
Nothing has shaken our world quite like the Internet revolution that has
taken root in our culture and economic life in a massive way since 1993. It is
continuing at a fantastic pace—the changes are still happening though with less
hype since 2001and more substance. Much of this activity is occurring below the
waterline, so to speak, and will profoundly affect our world in the next half
Jack Welch said that in his 40 years at GE nothing matched the Internet in
terms of its technical or technological impact and Jack saw a lot during his
career as a CEO.
Professor John Callahan, at Carleton University’s Sprott School of Business
and his research partner, Mr. Scott Mackenzie, have created an important
contribution to understanding the impact that the Internet is having on how we
conduct business-their curve shows that it is now possible for the first time
in history to get custom outputs from standard inputs and processes.
Getting Custom Outputs from Standard Inputs
What this means is that we have transitioned from the days of an artisan or
guild worker (now called a ‘consultant’) who produced one off creations to
order (made to measure suits, for example) through to mass produced products
(Henry Ford’s automobile assembly line) and now to made-to-order, custom
products created from standard processes and inputs (like the way Dell’s web
site or call centre allows each client to customize their PCs to their
specifications using only standard Dell inputs and processes).
By reversing out the design work to the customer, Dell has created a
powerful position in the marketplace and become one of the largest PC makers on
The internet is all about automation and reversing out the work. Doesn’t
apply to me and my business, you say? Well, it turns out that most of us have
the ability to move up the value chain by using some of the revolutionary
aspects of the Internet in our businesses.
Let me give you another example. We have a number of home builders who are
figuring out that they are soon going to be in the web site operating business
and not the home construction business at all.
Today, with all due respect, the home building business is still largely a
craft-based endeavour which, were it compared to the computer industry, would
still produce five function calculators that look like primitive World War II
vintage Turing machines (used for breaking Japanese and German codes)—big,
clunky and expensive.
Ultimately, a home builder’s web site will allow consumers to ‘goggle’ in to
the site in three dimensions, to choose the model that they want, the lot that
they want and then to load up their shopping carts with the features they
desire. As they make changes to their design and add and subtract amenities,
the calculator will tally and show them their costs.
Visa and MasterCard are moving upstream—their credit cards will be used for
everything including buying a new car or buying a home. There is a small but
fast growing market for power cards that carry credit limits in the hundreds of
thousands of dollars.
This home buying e-commerce transaction using a credit card is only the tip
of the iceberg. In all probability, it is the e-business applications that will
have the most dramatic impacts on home building. Pre-authorized suppliers and
sub-trades will log on to the builder’s web site to estimate the volume of work
required and to bid on it.
Scheduling, based on just-in-time delivery, will be net based. Payments will
flow business to business via e-payments. Municipal inspectors will log on to
see when they are required for inspections.
Municipalities will recognize that home builders are their clients. The
number of separate subcontractors and trades will fall from 25 or 30 today to
perhaps just 8 or 9.
If former Russian President, Boris Yeltsin in his early days as a
construction boss in Sverdlovsk (1,000 miles east of Moscow) could build five
storey, wood frame apartment buildings in five days (albeit with a huge crew),
surely we can learn to build houses in 45 days or less at higher levels of
quality, with fewer defects, higher margins for the industry and lower prices
The home builder will become a web site operator. Legal closings, land
registry documentation, mortgage financings … all will be web enabled. And what
does this do to profitability? There is no doubt that efficiency will climb,
productivity will increase and in every instance where this has occurred, more
wealth is created for all to share.
Americans are early adopters of technology and none is more earth shattering
than their embrace of the internet. As a result, the Internet is eating an
enormous hole in the world’s economy. After all, it does not matter how little
someone is paid in the third world, the Internet can do it faster and cheaper.
Old-line industries are going through incredible re-engineering.
A national advertiser who wanted to launch a national billboard advertising
campaign just five years ago went through a six to twelve month process. They
drew up a campaign theme, got the creative done by an agency, had the agency
contract billboard locations with up to 25 regional billboard companies, sent
the artwork out to all of them by courier, received back the proofs from all 25
for approval, made the necessary changes to get consistency in the artwork,
sent them back, checked them again, signed off finally. The images were then
often hand painted on huge strips and, at last, a crew went on site and glued
them to the board.
Today, billboard companies can put their inventory of available billboard
locations on their web sites and agencies can book and pay for that inventory
on line. Agencies then can download their artwork over high speed lines and, as
billboard companies merge and become national and as they move towards
replacing conventional billboards with high definition video boards, an agency
can place a national campaign in a matter of hours or days. It does not matter
how little a third world labourer is paid; the web can do it faster and
Harnessing the Internet effectively means:
a. you can ‘make money while lying on a beach’—i.e., your enterprise can run
without you being there every second to manage it;
b. the enterprise is scalable—outputs grow non-linearly with inputs—i.e., more
hours worked will produce way more money for you;
c. you have reversed out the work—let your suppliers and customers do the work
for you like, say, Digg.com does;
d. you can mass customize products and services for clients in a cost effective
e. you can connect with new clients and customers in a cost effective manner
using things like social marketing!
The entire global economy has to move up the food chain and the only way to
do this is to invest in education, medical care and social order, which happen
to have been Canada’s
priorities for the last 50 years. We have it right, now we just need to execute
Find Pre-launch and Launch Customers and Sell, Sell, Sell
Business Week published (Seton
Stillman School of Business study, August 25, 2003) their take on why most
businesses fail. I’ll bet you that their top five reasons (too much debt,
inadequate leadership, poor planning, failure to change and inexperienced
management) are in fact related to number six on their list: not enough
To me, a business that does not generate enough revenue is probably (by far)
the biggest cause of business failure. Perhaps, they are not generating enough
revenue because of inadequate leadership, poor planning, failure to change and
inexperienced management, which also means they can’t meet their debt
obligations. In other words, they may not be interpreting their stats in quite
the right way in as much as their independent variables are not truly
independent and, hence, their take on causation might be wrong.
What are the three most important things for a startup to focus on? SALES,
SALES, SALES. The focus on sales is also an important requirement for
established businesses. I mean how long do you think mighty IBM would last if
it didn’t collect its receivables? IBM sells around $85 billion worth of goods
and services a year (one customer at a time, btw) so that means around $7
billion a month. If they don’t collect for two months that means that they
would have a cashflow shortfall of $14 billion so my guess is that even IBM
would be in serious trouble in less than 60 days.
Today, if you have enough revenue, you will get financing, not the other way
round. This is the lesson of the false boom of the late 1990s when VCs and
others financed startups with interesting business models but no revenue
prospects. This has never worked, in any age.
If you have enough revenue, you can meet the cashflow demands of debt
servicing costs so a focus on revenue growth is vital. One needs to not only
generate the revenue but collect it too. This seems self-evident but a lot of
startups don’t do billing, invoicing and collections very well and many don’t
do selling or pre-selling very well either.
In my experience, the number one reason for failure is the absence of
buoyant revenues. I mean how many businesses have you heard of folding if their
revenue numbers are going up and up?
Remember the Golden Rule: “He/she who has the gold, rules.” Put another way:
“Cash is King (or Queen).” If you have real customers and real clients and real
cashflow, you have POWER.
Another thing you have to do is find launch clients.
As soon as you come into contact with a real customer, your business model
is likely to change (for the better). Clients who plunk down their money (this
is called a deposit), are giving you additional confidence that you are on the
NHL hockey fans in Ottawa gave us $22 million in cash (deposits on season
tickets and sponsorships (signage, media rights, pouring rights, product
rights, etc.)) for the expansion Senators in December 1990, some 22 months
before the first game was played (in October 1992)!
Executing Expertly, Showing Leadership and becoming a Trusted Member of
your Community and Business Ecology
Jack Welch and Suzy Welch in a Business Week article (Feb. 4, 2008) state
that a CEO (and a prospective President of the US
in this an election year in the US)
need five basic leadership skills:
1. They need to be authentic and, hence, trusted;
2. They have to have vision as well as be able to communicate it effectively;
3. They have to be able to hire great people and sometimes fire them too;
4. They need to be able to bounce back from a setback;
5. They need to be able to “see around corners”; notice changes in their
markets pretty much before anyone else does.
They also mention another requirement which I would put under the category
of management rather than leadership:
6. They have to be able to execute.
These are pretty good guidelines. I would think that they also apply to
entrepreneurs but I think entrepreneurs need a few more:
a. They need to be able to sell;
b. They need to be able to control costs;
c. They need to be able to make up their own rules as they go along;
d. They need to be creative in many of the things they do;
e. They have to bring a sense of urgency to each day;
f. They don’t take ‘no’ for an answer;
g. They need to buck the system and be comfortable doing it;
h. They have to be self reliant;
i. They need to be able to deal with risk and uncertainty;
j. They have to be able to set and achieve goals but be flexible enough to
change their plan in an instant;
k. They need to be able to borrow best practices from wherever they find them;
l. They need to know when it is time to give up on a business and start
m. They need to be able to work long hours and to be effective during that
n. They have to set priorities;
o. They have to see their whole business ecosystem as part of their TEAM;
p. They have to understand human psychology: the psyche of their employees,
their clients, their suppliers and they have to be better poker players than
they are chess players- they need to be sympatico;
q. They need to be humble, learn from their mistakes and never make the same
r. They never try to go back and revisit something that didn’t work already
once- they just move on;
s. They can cope with high levels of stress.
I am sure there are a ton more characteristics of successful entrepreneurs but
this a pretty good list to start with. If you get 70 or higher on our ECQ Test,
you probably have what it takes to be an entrepreneur.
There is nothing more important for you and your career than your ethics and
your reputation.. When I was just starting out in business in 1982, a wealthy
lawyer by the name of Kent Plumley (he made a lot of his money as an early
stage investor in Mitel and later in Newbridge) told me: “Bruce, the number
one thing you have to remember is: protect your reputation.”
I thought that was easy for Kent
to say, given that he was sitting on millions. But as I grew older I realized
he was right. Do you know why?
Well, here is how it works:
1. You work hard (for years) to establish a reputation for good work, high
ethical standards and trustworthiness.
2. Trust creates an environment for you where clients will send you more and
more of their work.
3. Trust creates an environment where your clients will refer other clients to
4. Trust gives you breathing room when you do make a mistake—people will cut
you a lot of slack even then because they trust you.
5. Trust creates a personal brand for you individually, independent of your law
firm or accounting practice.
6. If you change firms, your clients will follow you because of their trust in
you and because they have confidence in you.
7. Trust creates a brand and a brand creates a marketing opportunity which you
can turn into sales or as my wife, Dawn likes to call it ‘IGA money’—money that
you can touch, feel and spend.
One of the best recent examples I have seen of this process at work is the
current marketing for Clarica. Their television ads are done with a sense of
humor and have made a lasting impact on the marketplace I am sure. But why
would Clarica have invested hundreds of millions of dollars in a marketing
campaign like this? It is instructive to find out why.
First, let me ask you another question. How many of you have wanted to get
up off the couch after watching one of their commercials and place a call to a
Clarica agent to buy some life insurance? I don’t think there is even a
call-to-action at the end of theses commercials; selling life insurance is not
like selling K-Tel slicers and dicers: “Call now; operators are standing by to
take your order at 1-800-555-5555!” Well selling legal and accounting services
isn’t like that either (or at least, mostly, they’re not. You have to ignore
the later night commercials by lawyers asking if you have recently been injured
in an accident.)
So why does Clarica do it? If you look at the diagram above, they market
through a marketing process to build their reputation and brand. A good
reputation and solid brand creates trust in Clarica in the minds of the public.
So when a life insurance salesperson sits down with John and Sally Smith in
their living room to sell them life insurance, John might say: “Oh, I have
heard of you!” John and Sally already trust the salesperson before their
meeting ever takes place.
They trust Clarica a heck of a lot more than they trust, say, the Pirate
Insurance Company of Kinakuta*, who they have never heard of before and who
hasn’t spent a ton of money creating their brand and a reputation.
(* Thanks to Neal Stephenson for inventing this country.)
Note that Clarica doesn’t sell a thing through their marketing; they have
established a separate sales process (having thousands of life insurance agents
out there, making meetings and actually doing the selling.) Lawyers and
accountants can learn a lot from this example I think.
Note that a sale, any sale, actually gets completed because of trust—the
client trusts you and, therefore, are willing to buy from you. That’s the real
secret to selling—creating trust. Remember, people like to buy from people they
like and trust.
When I was starting out, one of the real estate lawyers who helped me also
helped herself. We noticed that whenever we were closing on a property, another
developer always seemed to be in the same area, sniffing around. It wasn’t long
before we figured out there was a leak in the law office we were using at the
time and, with the help of the senior partner, we set about trying to prove it.
Unfortunately, it turned out to be the case. It was a devastating blow to the
firm and the lawyer involved was summarily dismissed. She was never a
significant player after that in the real estate business in Ottawa.
I don’t care what city you practice in a small city like Ottawa,
a mega city like NYC or a city like Buenos
Aires, the Paris of South America. Every city is
controlled by a small number of business and political leaders. In Ottawa, the number of
real movers in tech or real estate or any other major economic engine probably
numbers no more than 500. In NYC, it’s more but probably not more than 1,500.
So it’s a small number really.
What that means is that if you muck up your reputation, you probably have to
move. Better to keep it in the first place, right?
Make Your Own Rules and Set and Achieve Your Goals
One of the hardest things for my students to learn is that there are no
rules in the field of entrepreneurship. By that I don’t mean that you go
outside the Law; I am not talking about those kinds of rules. You always obey
the Law and protect your reputation; the latter is the most important thing you
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
Let’s remember what Gino Rossetti from Detroit
asked the owners of the Detroit Pistons on a visit to Joe Louis Arena: ‘How
come the people who pay the most (i.e., suite holders) are the furthest away
from the floor?’ Joe Louis only has one ring of suites, which are located
at the nosebleed level.
The answer was that all arenas are built that way; it’s just the way it’s
done. But Gino whipped out his sketch pad and said: ‘What if we had two
lower rings of suites– the first one just 12 rows from the action on the court?’
That single insight revolutionized arena design and economics. It not only
increased the number of suites in these buildings, but people also paid more (a
lot more) for private suites close to the floor or ice surface. Plus it gave
the ownership committed revenues (because they signed 5 and 10 year deals with
leaseholders) and it gave them the ability to finance new arenas on a
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
Less volume in the building creates a less expensive but more intimate
structure which benefits not only the fans of major league sports but concert
goers too. So Gino gave the world not only a much higher revenue-generating
sports facility but there is a qualitative improvement too.
Students often ask me how prices for new products or services are arrived
at. They seem to feel that there is some form of government control or other,
officially approved, algorithm that generates a price. I tell them the story of
Butch Cassidy (in the film BUTCH CASSIDY AND THE SUNDANCE KID) when he was
challenged for the leadership of the gang in a knife fight. Butch says: “Before
we fight, I have to explain the rules.” His opponent, a giant of a man, says:
‘Rules, in a KNIFE FIGHT?’ Butch then walks up to him and kicks him in a
vulnerable spot and then stomps him into the ground saying; “Rules? There are
no rules in a knife fight.’
Pricing is a bit like that. In a competitive marketplace, you can charge
whatever you like. It may be above your cost (often way above, in, say, the
marketplace for baseball players), at your cost or even below cost (these are
called loss-leaders; e.g., selling below cost milk to get folks into your
supermarket. Ever notice how the milk is always furthest from the door in every
store– that’s to get you to impulse buy when you are walking through the
Rules? There are no rules in entrepreneurship; you get to make up your own.
You just have to hope the set of rules you choose, works; i.e., they underpin a
viable business model.
Lastly, I am not a big believer in detailed planning.
I am a big believer in having great business models as you know from reading
this essay but plans, well, they are usually out of date shortly after you
finish writing them.
Good Generals know that war plans are out of date the moment you make
contact with the enemy. Your enemy is not just going to sit there with large
KILL ME signs taped to their backsides. They are going to move and react to
what you are doing so if your troops can’t show some adaptability in the
field—they are likely to wind up dead.
Entrepreneurship is like that. Your competitors want to kill you; don’t kid
yourself about that. They want to buy you out by taking your customers away
from you, one at a time. As Tom Cruise said in the film Jerry McGuire: “We
live in a cynical world. A cynical world. And we work in a business of tough
One way to counteract that is to set goals for yourself and your team, both
near term goals (like monthly sales targets) and longer term goals (we will get
x% of the market by year’s end). Tell your goals to your staff, put them up
where everyone can see them—democratize information!
Also, get rid of negative language. Never say: “I’ll try.” Say and think to
yourself: “I’ll do it.”
Humans are uniquely able to visualize, self actualize and internalize goals.
If you can see yourself doing something, your chances of doing it are much
improved. When I was 11, I was the youngest member of our gymnastics team but I
had a hard time doing one particular flip off the springboard and over the high
horse. Our gym teacher, a tough task master by the name of Major Anderson told
me on a Thursday that if I couldn’t do it by the following Tuesday, I was off
I practically cried when he told me that.
I practiced and practiced but could never get it right. I knew on Monday I
was cooked but that night, I had a powerful dream—I saw myself hammering that
springboard and doing a perfect flip. The next day I went into gym class and a
couple of the guys were sniggering as I lined up to attempt the flip. I
executed it perfectly and made the team.
In my experience, there are a number of reasons why entrepreneurs choose the
life of an entrepreneur. They include:
a. They feel they can make more money or they see the need to make more
b. They believe they can have more flexibility in their schedules.
c. They think that they don’t have other viable choices; e.g., they get laid
off or can’t find a JOB.
d. They want to provide a legacy for themselves and their families and kids.
e. They want the fame that goes with success.
f. They want to prove to themselves and others that they can do it.
g. They want to be their own boss.
h. They want more responsibility sooner in their careers than they could get in
a typical JOB.
i. They don’t like bureaucracy and rules—they want to make up their own rules.
j. They want to belong to a team and to feel like they are part of something
that is bigger than themselves.
k. They want to give back to society—if they have success, they can better help
their fellow human.
l. They don’t want to become a burden on society.
m. They want to be responsible for themselves and make their own decisions.
n. They feel that they can create more interesting work for themselves than
others can create for them.
Of all of the above, I believe, after thousands of interviews with
entrepreneurs, that the last reason is the most important.
We are driven to be creative. We have these huge brains and dexterous hands
with opposable thumbs and there is a deep seated drive to use both.
Humans are constantly tinkering with their environment. Living in
Dilbertville is not very satisfying and, notwithstanding all the risks, effort
and heartache that can come with an entrepreneurial lifestyle, it is still the
choice of many, many creative people.
The kids who took over the Internet from DARPA, the DOC and ICANN in the
1990s wanted to move there—to a fantasy place where there were few rules and
abundant territory to be explored and developed. Remember, poets, artists,
architects, writers, sculptors, musicians, videographers, software architects
and novelists are entrepreneurs.
They come to study with me too because they want to be rewarded for their
creativity, they don’t want death to be a career move and they want to learn to
get rich while they are still alive.
Postscript: I often get asked about how I got my start in real estate.
Answer: I bootstrapped it. In many ways, real estate ownership is PB4L creation
for DUMMIES. In any event, I reproduce for you below, the slides I put together
for a speech on:
HOW I BOOTSTRAPPED A $100 MILLION REAL ESTATE BUSINESS IN LESS THAN
Bootstrapping and Trust
1025 Merivale Road, Ottawa ON: Lipstick Job, Real Estate Flip
1025 Merivale Road, Ottawa ON: Flip Spreadsheet
Bob Compeau: Standing Your Ground
He/She Who Has the Gold, Rules: Golden Rule
Getting Into Bed with a Whale Can Lead to Extinction for the Minnow
Campeau Corp Buy-Out Spreadsheet
Buy Low/Sell High: Easy to Say, Hard to Do
Brookstreet Hotel/Marshes Golf Course Spreadsheet
Villager High Ranch Bungalow
Villager High Ranch Bungalow: Ground Floor
Villager High Ranch Bungalow: Lower Level
The Granny Flat in Sanata Cruz, California
In-Home Suites and Apartments
Making Housing More Affordable
Failure Because You are Not the Market
Blue Heron Mini Storage: Go Under the Market
Stay out of the Way of the Whales
Develop Some Type of Competitive Advantage
Be a Good Neighbour
I’d Rather have a 100 clients in a Building than 1; If 1 Leaves, You Still Have a 99% Occupancy Rate
PETA, Presidential Executive Travel Apartments
PETA: Add Some ‘Pixie Dust’
Maple Leaf Design and Construction: Bootstrapped
Borrow Your Clients’ Credit Scores
Invest in Distressed Areas Close to Major Infrastructure
Don’t Follow Everyone Else Off a Cliff
Triole Street Spreadsheet
Going for Broke: The Return of the Ottawa Senators
Bootstrapping the Ottawa Senators
Trying to Make $50,000,000 in a Land Flip to Pay for the Team
Make a Profit
You’ll Never, Ever Get a Franchise for Ottawa
Young People Have a Lot to Contribute, Especially Sweat Equity
The Impeccable Warrior
Ever wonder how Actors get Shakespeare right? How do they memorize all their
lines and deliver them so eloquently and profoundly?
They practice. A lot.
I worked for a really tough guy in the 1980s—he was a PhD in Engineering
Economic Systems from Stanford and that is one tough degree to get at one of
the world’s top universities.
He didn’t brook shoddy performances and, frankly, was no different than the
toughest Director—he wanted the best from his employees (actors) and demanded
that from everyone, including himself.
Everyone I knew who worked there kind of feared him. One day, we were
expected to make a presentation to a senior member of the GOC (Government of
Canada) and he asked me: “Did you practice your presentation?” I told him not
to worry, I am a natural, a good presenter and it was in the bag.
Naturally, I flopped badly. I was embarrassed and promised him it would not
happen again and it never has.
Ever since that day, I prepare for every meeting, presentation, lecture or
speech I give. Always. No exceptions.
(* In his book: Outliers: The Story of Success, Maclom Gladwell (Little,
Brown) posits a 10,000 hour rule: if you want to be a top performer in
anything, you need to put in at least 10,000 hours of practice. That is about
five years worth of normal 40 hour work weeks. I suspect that Gladwell is bang
on. My PhD Thesis supervisor, Professor Max Neutze (now deceased) was a rather
demanding person. He told me one day: “Don’t worry Bruce, the first million
words are the toughest.”)
It takes me at least two hours to prepare for a three hour lecture and this is
for a lecture in which most of the material is original to me. I still need
time to prepare, to organize and to ensure that I will give my students full
value for their time in my classroom. It is a performance and the students are
my paying clients. I respect them, their time and the commitment they have made
to come to the University, both financially and in terms of giving up years of
their lives to be there.
When I first started teaching at Carleton’s School of Architecture in 1994,
I noticed how committed the profs were—if they had a lecture coming up in a
couple of hours, they always excused themselves and prepared. They would stop,
sometimes mid-sentence, remember what time it is and, poof, they were gone to
prepare. They earned my respect, for sure.
That is why I am so concerned about some of the business executives I meet
and some of the students I teach who don’t know what it means to be prepared.
Even if it is only gathering my thoughts for five minutes, I know if I
scribble down a few questions for an upcoming meeting, that meeting is likely
to be far more productive.
Last week, I briefed the VP of a local property management firm on a
potential client for his firm. I told him a bit about the client, the five
buildings he owned, how many units there are in each building, what the vacancy
rate was like, etc. I gave him a thorough briefing and organized a conference
call for him to speak with the client who lives out of town.
About an hour before the con call, one of my staff told me that the President
of the firm wanted to take the call—he felt that an important new client should
have the benefit of speaking with the Pres of the company. So, fine, no
problem. Or so I thought.
An hour later, we connect on a 3-way call and the first thing out of the
President’s mouth is: “OK, so what’s the deal here?”
He knew NOTHING about the client, the properties and the job at hand. I was
embarrassed for him but also for me. I recommended his firm after all and I was
looking pretty stupid in the client’s eyes.
Now in my experience, if this was an American firm, he would have known
everything he could about the guy on the other end of the line; he would have
found out if they had any friends in common, whether they like the same sports,
he would have been all over the guy’s website, he would have visited the guy’s
five properties and he would have had a specific plan on how to improve the
properties, their look, their management, their lease up, their rental rates,
their landscaping, their maintenance, etc.
He would have found out ways to improve the guy’s bottom line. He would have
convinced the potential client that hiring his firm and paying his management
fees would represent a NEGATIVE COST. That is, the cost of hiring his property
management firm would be more than offset by: a) reductions in vacancy rates,
b) reduction in maintenance costs, c) increases in rents for each apartment, d)
finding new revenue streams—like paid parking, paid laundry, maybe
telecommunications towers or billboards added to the properties…
He would have had a spreadsheet prepared and ready to send the client. He
would know the market and how to market the empty apartments in a cost
effective way. He would have projections!
The company did not get the contract; I apologized to the client. I need to
spend more of my time finding an alternative and I will never, ever refer
anyone to that company again.
This is, I am afraid to say, very typical of Canadian Managers and one of
the reasons why we have so few world class firms.
I have a kind of informal score that I keep in my head. On a scale from 1 to
10, firms that I have some familiarity with like, say, the Disney Company
operate at around a 9.8 out of 10. That is about as well as you can possibly
do. Anyone who has ever been to a Disney run Theme Park can see what they can
do. It isn’t as easy as it looks. Trust me. They call their clients ‘guests’
and treat them that way—just like you do when folks come to visit with you in
your home—and they call their employees (even their street sweepers and
cleaners) ‘performers’, who must go to Central Casting every day to get into
‘costume’ (not ‘uniforms!) If you ask anyone at a Disney Park,
even the most menial worker a question, they will know the answer or they will
immediately stop what they are doing and help you until your problem is solved.
You know what many Canadian companies think about customer service? It’s a
cost centre! That is why they are usually so bad at it. (It is obviously a
profit centre, if you know what you are doing.)
In my home town of Ottawa,
the organization that probably comes closest to working at a world class level
is the Ottawa Senators. Now I founded the Sens so I am biased but the heavy
lifting has all been done by others. In a small market like Ottawa, the Sens are in the top five or six
in just about every revenue category. (They compete with 29 other National
I give the Sens around a 7.5 out of 10 which is about as high as you can
achieve in a place like Ottawa.
No local company has the depth to compete with a Disney but 7.5 is darn good
Now I am a Broker in the real estate industry and I can tell you that most
firms in this industry in Ottawa
probably operate around .5 to 1.5 based on my informal and completely
unscientific scale. In other words, we are terrible.
Sometimes, REALTORS may put commissions ahead of clients’ interests; they
may do a lousy job on their information packages and websites; they may hoard
information; they may compete with each other in inappropriate ways; they may
be lazy and unprepared; they may do little in the way of marketing unless
pushed by our clients; they may get a listing and then practically never talk
to a client again; they may pick the low hanging fruit; they may try to get the
list price down for a fast sale; they may promise to do open houses and then
don’t; they make the same mistake over and over again…
Part of my job is to get the folks to do what they should be doing—if you
put clients’ interests first, I believe you will come out far ahead. One
satisfied client will lead to two more. But trying to get REALTORS to change is
proving harder than I thought.
Postscript: One of my pals runs Wilderness Tours (he is an expatriate
American from Philadelphia) in Beachburg, Ontario.
I think WT runs at around a 7.5 level too. It provides a fantastic experience
for its guests. Joe told me that he works on “TPO”, Touch Paper Once (also known as “run to completion” in tech circles). He tries
to do everything just once—get it right the first time and never, ever have to
go back and re-do it. I hope my current organization will get to that level
some day. Right now, we do stuff over and over again until we get it right. But
it would be a lot better if we could learn to do it right the FIRST time. Since
paper is less a factor in today’s world, maybe Joe’s slogan should be “TAO”—Touch
Anything Once. I also like the Tao analogy—it will certainly lower my blood
pressure if my staff can learn the Tao.
(Taoism has to do with the ancient Chinese concepts of Yin and Yang (plus a
lot more)—that is, every action begets a reaction. It is actually quite
relevant to this essay because, if you think about it for a few seconds, if you
do a bad job as a REALTOR, for example, that is likely to bring quite a
negative reaction from your clients and the marketplace and the reverse is also
probably true. So doing things right in the first place is synonymous with
doing things once; if you practice TAO (as we have defined it here) you will
become more proficient and efficient and effective, you will bring about
positive reactions to your work, you will create positive energy around you,
reduce your frustration and the frustration levels of those around you and be
more in harmony with life in general. You will also probably make more money
too and that can’t be a bad thing for you and your family.
I read Carlos Castaneda’s books on the Yaqui Way of Knowledge when I was a
teenager hanging around UCSC. (A beautiful girl was involved naturally—it was
the late 1960s after all.) In his books, Castaneda talked about the Impeccable
Warrior and it had a profound influence on me. Now many people believe that
Castaneda’s books are a fable rather than what he claimed them to be—first hand
research of ancient Mesoamerican Shaman practices in the deserts of Mexico.
But be that as it may, I have told my students that to be successful at
ANYTHING, they need to assert control over themselves and they need to develop
patience. If you drink too much, stop drinking*. Not getting enough exercise,
change your personal routine. Smoking and toking interfering with your health,
memory and productivity, stop smoking and doping yourself. I like what Jack
Dawson (Leo DiCaprio) said in the film Titanic: “Make each day count!” Life is
so much richer if you are not hung over or under the influence of other
(* There is an apocryphal story about a well known, New York-based developer
who has a tendency to put his name on his projects. He inherited a number of
residential apartments in the New
York area from his Dad and then proceeded to build a
fantastic real estate-based empire with signature buildings, casino interests
and, later on, a hit television show. But there were some hiccups along the
way. The story goes something like this: he was a teetotaler, a workaholic and
a family man with a lovely wife and kids. For some reason, he got involved with
another woman, installed her in a condo around the corner from his office and
started taking long lunches and coming back to the office in mid-afternoon
smelling of booze. Now how long do you think it took to ruin his family, his
business and his reputation? Incredibly, he accomplished all of this in less
than a year. Tenants were calling, bankers were calling, suppliers were calling
and he was nowhere to be found. Once confidence and trust in you goes, the rest
follows in a hurry. A few years later, he stopped drinking again, he dumped the
other woman and got his personal and professional life back on track and is
enjoying immense success again. NEVER DRINK AND THINK.)
I am certainly no impeccable warrior. I am a flawed person, for sure. In
fact, I always wanted to be Gregory Peck’s character in To Kill a Mocking Bird,
Atticus Finch. Finch was described by author Harper Lee as the same type of
person at home as he was in public. This is one of the highest accolades that
you can ascribe to any person. In other words, he wasn’t a phony.
But I can point to a few things I have done that helped me get closer to the
standards set by my heroes (both real, my Dad and my mother-in-law and
fictitious, Atticus Finch and possibly fictitious, Sorcerer Don Juan): a) got
my PhD, b) had five kids, c) brought back the Ottawa Senators, d) wrote more
than two million words of hopefully decent research material, articles and
essays, e) taught some great students who have gone on to create some really neat
things, f) went back to school in my 50s to get my real estate broker’s
license, g) took up Yoga in my 50s after all the sports injuries I suffered
took away the things I like to do like play hockey, tennis, go skiing and
windsurf, etc, h) stopped biting my fingernails because one day I just decided
to stop doing that (it’s really bad for your health (imagine the number of
bacteria you transmit from under your fingernails into your digestive system by
way of your mouth) and looks like heck) and never did it again.
I have developed a kind of patience too—I can now understand what Don Juan
was trying to teach Castaneda by making him push a piece of dung around Juan’s
modest desert home with a stick for a day and a night and a day without ever
knowing when Juan would tell him to stop. I can pick up a spilled can of peas
with chop sticks if I have to. I am not kidding. I could do it.
had that terrific storm last year that dumped a huge amount of snow on us, I
went outside with my kids and my wife and we started shoveling. We were out
there because the contractor we had hired for the season had quit on us—there
was too much snow. He had used up all the money his clients had paid him and so
he couldn’t pay for the gas or operator time he needed to continue. So he kind
of held us up—“Pay me more money or I won’t show up” is basically what he said.
He probably had that right in his contract to do that—most contracts drafted up
by lawyers have weasel words in them that protect their clients.
Well, he was protected alright. But to us, it sure didn’t feel right so we
said: “To heck with him” and just got the whole famdamily out there, some with
really tiny shovels, and we shoveled for the next seven hours.
(I notice this year, that no one on our block has rehired that guy. So his
lawyer sure protected him alright—so much so that he is now OOB, out of
Now one of our kids had a friend over. He was probably the strongest of all
of us and, at just 18 years of age, he should have been able to shovel FOREVER.
But he is a bit lazy (well, actually really lazy) and he had an idea—he could
call up one of his contractor friends who had a truck with a plow and get the
thing done for us with no work at all! Great idea, right?
Wrong. Don’t you think that during the greatest snow storm in a generation, his
friend would be out there making some money with his truck and unlikely to get
around to us for DAYS. No way was I going to be stuck, at someone’s mercy for
days. If anything happened, an emergency or whatever and we needed to be
mobile, I was getting our vehicles on the road. To heck with waiting.
The night of the big storm, I and my two boys were out at 3 and 4 and 5 am
digging one of our vehicles out of a snow drift on the main road. One of our
kids had stranded it there. It couldn’t be left there—the Mayor had declared an
emergency and if a vehicle is blocking a major road, well, the plows will just
shove it out of the way. Bye, bye family van.
Now I have all the equipment to get just about anything out of snow bank so
we just went out there and did it—and at the same time got a few of our
neighbors’ cars unstuck too.
But I can tell you, it was scary out there. I can see how glaciers can form
in a hurry after that night. It’s one thing to see a film about it (like, The
Day After Tomorrow), it’s another to see it in one night in your hometown. I
can tell you if it ever snows year round, Canada would be uninhabitable in no
But the point of all this is: develop some patience. I like to rely on
myself, I don’t like free stuff and I have patience and determination to do
things, to get things done, to finish and complete things.
When I was a kid and attending McGill
University in Montreal, I had my own apartment but I
couldn’t afford a vacuum cleaner. I also couldn’t afford any furniture. (I
solved this by raiding the Engineering Department for milk crates and Styrofoam
(my dining room table and work table) and the Sally Ann for cushions, foam
mattress and dishes.)
I also liked to entertain (a girlfriend or two) and it wasn’t lost on me
that they tended to like things neat and clean. I also happen to believe that
being reasonably well organized and living in a clean environment is a good
thing. So I re-learned what my mother’s people knew—they came from Russia and if
they had to clean their carpets, they swept them with a broom. Not too many
Russian peasants had vacuum cleaners, circa 1909. Ha. Ha. None of them did, of
course. And if the broom couldn’t get all the dirt, I would get done on my
knees and pick up lint piece by piece, no problemo. Don Juan would have been
proud of me.)
I have been asked over the years if I can come up with some ‘rules to live
by’ in order to become a successful entrepreneur. I think those ‘rules’ might
also apply to anyone in any field of endeavour. So I put together my 30
Guidance Rules which are a mixture of new age philosophy and ideas as old as
civilization. I am not claiming originality here.
1. Be someone others can have trust in. Trust is the foundation of a
successful life in business and in your personal situation.
2. Under promise and over deliver.
3. Have a belief in something greater than yourself.
4. Develop some self-knowledge. Be in touch with your gut (instincts) and your
5. Be the same person in private as you are in public—don’t be a phony.
6. Behave ethically.
7. Don’t place your trust in false prophets.
8. Live a healthy lifestyle—all things in moderation. Don’t drink and think.
Get some exercise. Don’t take drugs. Don’t smoke. Eat reasonably. Enjoy the
life you have been given and enable your body and your mind to work to their
full potential unclouded by substance abuse. Exercise some self-discipline. Get
9. Try not to swear.
10. Try to find some time for yourself and your family every week.
11. Honour your elders—don’t throw people away because they get older.
12. Do unto others as you would have them do unto you. (The Golden Rule.)
13. Avoid the Seven Deadly Sins of pride (vanity), envy, gluttony, lust, anger,
greed and sloth.
14. Give people including yourself, a second chance (but not a third chance).
Forgiveness is blessed.
15. Be a Good Samaritan and a good citizen and a volunteer.
16. Make no acts of commission but forgive yourself and others for acts of
omission, everyone makes mistakes.
17. Don’t hurt anyone.
18. Be faithful to and love your spouse and your family.
19. Be humble—walk a mile in someone else’s shoes. Be merciful. Don’t live an
extravagant lifestyle. Be modest. Live modestly.
20. Take care of our planet.
21. Don’t steal. Don’t take what doesn’t belong to you.
22. Seek education, experience and wisdom. Work smarter. Enhance and embrace
23. Don’t lie.
24. Love thy neighbour as thyself. Stand up for others who need your help. Help
others and be generous. If you want something done, ask a busy person. Manage
your time—make each day count.
25. Be positive. Do not fear success. Fear failure. Don’t be afraid of
competition—it will make you better. Don’t engage in self-pity when things go
wrong. Look in the mirror first before you blame others for your failures.
Don’t get too high or too low. Compartmentalize—try to keep going even if parts
of your life are not working well.
26. Be patient. Success takes years of effort. The harder you work, the luckier
you get. There are no shortcuts.
27. Lead by example. Be committed. Focus. Be competent. Show up every day for
work—the ‘show’ must go on. Do things in parallel. Be a good team member and
friend and colleague.
28. Seek out others who share these characteristics—surround yourself with good
29. Take care of your business so it can take care of you and your family—don’t
become a burden on your fellow human. Take responsibility for yourself. Pull
yourself up by your bootstraps and help others to do the same. Accept help if
offered and seek it when you need it. When something isn’t working, change.
30. Stick together and reach out to others.
The Moral Underpinnings of Entrepreneurship
Optimal Production of Goods and Services for the Maximum Number of
Capitalism is under attack today for the abuses of a few ambitious,
unscrupulous executives who have either perpetrated massive frauds upon the
public or enriched themselves at the expense of others without providing value
in return. We have laws against the former (it’s called fraud) and we weed out
the latter through a process in which people refuse to buy from or sell to the
Not for a minute should the reader think that such miserable examples of
humanity are any more prevalent in a mixed capitalist economy than they are in,
say, a socialist society, a communist one, a feudal arrangement, a
dictatorship, a religious hierarchy, a co-operative, a kibbutz, a kingdom,
anarchy, tribe, a family or any other type of social system. Extreme cases make
for bad laws—if someone in your company misuses access to the Internet, banning
access for the 19 out of 20 employees who use it as a valuable resource, is
wrong for the corporation, bad for company morale and will lead to a
catastrophic loss of competitiveness.
A Ponzi scheme (a pyramid scheme) is not a new device. Fraudulent investment
products have been around forever. Products of dubious value and extravagant
claims have been peddled to the unwary for centuries upon centuries. Humans
have been trading for about 100 centuries and, for most of that time, this has
led to a huge increase in wealth. Humans are by far the most dependent
creatures on the planet—we specialize and then we specialize some more—this is
as true of individuals as it is of nations.
Adam Smith in the WEALTH OF NATIONS notes that a seemingly simple overcoat
is the product of “the joint labour of a great multitude of workmen …without
the assistance and co-operation of many thousands the very meanest (poorest,
ed.) person in a civilized country could not be provided…”
When individuals pursue their own self-interest, they are, in effect,
self-organizing to produce the optimal amount of good and services for the
maximum number of persons in their society. This, of course, assumes that a
competitive market exists for those goods and services and that individuals are
prevented by their competitors from over-charging for their products or
services by their desire to maximize individual profits.
Obviously, governments have a role to play in ensuring competitive markets
and enforcing laws against fraudulent behaviour. But beyond that, it is clear
that governments cannot be counted on to produce goods and services efficiently
through any form of direct government action. There is abundant evidence that
the private sector can do this much more effectively.
The Tyranny of the Commons
The City of Ottawa
wanted to bring in a new By-Law regulating the private use of private wood
lots. Wood lots in private hands that had been reliably producing logs and
firewood since the early 1800s were suddenly clear cut in anticipation of the
By-Law’s introduction. Owners who were good stewards of their lands for
generations—replanting and tending to their forests—suddenly became Paul
Bunyans. They feared that their property rights were about to be taken away and
they maximized their immediate return by felling every stick on their
Of course, the local market was flooded with firewood, prices dropped, lands
looked like Dresden
after the firebombing in WWII, streams were contaminated with runoff, wildlife
lost whatever habitat they might have had and future generations lost any
income they might have had from these wood lots.
This is the difference between optimization behaviour and maximization of
the objective function and the difference between the use of a commons and the
use of a private domain.
one of the natural wonders of the planet, contains more water than all the
great Lakes of North America. It is the
deepest lake in the world. It was also a dumping ground for spent Soviet
nuclear reactors, literally dropped there—out of sight, out of mind.
If no one owns something, no one cares for it, no one nurtures it, no one
looks after the best interests of its stakeholders or the large scale
ecosystem, of which humans are a part.
Efficiency and the Environment
No society has ever existed that left no footprint on their environment. All
societies pollute. Some more than others as we have seen.
But it is ludicrous to assume that efficiency and environmental protection
are mutually exclusive. If producers can find more efficient ways to deliver
their products or services, this, by definition, lessens their impact on the
environment. Fewer materials, labour and management as well as less energy in
the delivery of a product or service is obviously better for the environment.
And private sector initiative is the only way to obtain higher levels of
Surely, newspapers, if they are to exist at all by the end of the 21st
Century or maybe even by the quarter century mark, must find new business
models. The idea that we should clear cut forests, expensively transport logs
to mills, turn the logs into pulp and paper using chemical processes that are
devastating to air and water quality, ship the newsprint to printing plants,
print huge volumes of newspaper, to be transported by trucks, planes, more
trucks and finally automobiles to your front door, to be consumed in 20 minutes
with your morning coffee, to be thrown in the recycle bin, to be scooped up by
truck and then shipped to a recycling plant in China to be re-shipped across
the Pacific to the printers to be…
This is an insane industry in sunset for sure.
Devices like the Kindle 2 will almost certainly be used for the delivery of
the daily news and not just for downloading e-books.
(This is not an argument against the concept of the local or national daily.
Daily newspapers are an important part of creating a cohesive society. We need
a common language and jargon—if everyone becomes an island with his or her own
niche RSS feed, we will find it increasingly difficult to have national
conventions like, in Canada, the pursuit of peace, order and good government,
which are of paramount importance in terms of producing a civil society. It
isn’t intervention by the police or the threat of prosecution that keeps the
great majority of people honest—it is the voluntary buy-in to national
conventions and accepted standards of behaviour. National news organizations,
national broadcasters have a vital role to play—but they need to adjust their
business models and soon.)
Peter Patafie, a guest speaker a few years ago at the University, shocked a
group of B-School students by saying his priorities were:
1. First, take care of your business;
2. Second, take care of your family;
3. Thirdly, take care of yourself.
One student asked Mr. Patafie if he had somehow got the first two in the
wrong order. He said: “No.”
“Do you know what the number one cause of divorce is in Canada? It’s
not that you have fallen out of love with your spouse. It’s not that you are
arguing about the kids. It’s about finances or lack thereof. If you have
creditors calling you in the middle of the night, well, that puts a lot of
stress on the family.
If you take care of your business first, it will sustain you and your
family, sometimes for generations. That is how you take care of your family and
The morality of capitalism is based on the notion that if you, first take
care of your family and yourself, then you will not become a burden on your
fellow human. That is a moral imperative.
And once you have achieved that, you are in a position to do good works for
others, another moral imperative.
To summarize then, the moral underpinnings of capitalism are:
a. Self organization to achieve optimal production of goods and services;
b. Efficiency and environmental sustainability are linked;
c. Private ownership of the commons also means careful husbandry of resources;
d. Take care of your business;
e. Take care of your family;
f. Take care of yourself;
g. Don’t become a burden on society;
h. Look out for the interests of others once you have first taken care of your
family and yourself.
Perhaps Sir Winston Churchill said it best: “Indeed, it has been said that
democracy is the worst form of Government except all those other forms that
have been tried from time to time. (Speech in the House of Commons, November
Sponsorship can be a Useful Form of Bootstrap Capital
Even for SMEEs
The Sens and Sponsorship
When we were trying to Bring Back the Ottawa Senators in 1990, a team that
hadn’t played a game in the NHL in nearly 60 years, we had a lot of help. We
signed up 500 Corporate Sponsors at $500 each plus 32 Original Corporate
Sponsors at $15,000 each for the Ottawa Senators before the franchise was even
awarded. Perhaps more impressively, we sold 15,000 PRNs (Priority Registration
Numbers—reservations for season tickets for a team that did not yet exist) to
the public for $25 per PRN, non-refundable.
Of course, no one buys one season ticket, so these were sold in groups of
two. For their $25, potential season ticket holders got a nice form signed by
Cyril Leeder (now President of the Ottawa Senators and Scotiabank Place) and a bumper sticker.
PRNs were sold in twos and fours, mostly to individuals and SMEEs.
Jim Steele (now head of Sens broadcasting) told me he got into an argument
with a guy on the phone late one night in November 1990 (the team was awarded
by the NHL on Dec. 6, 1990), got dressed, went down to the bar where the guy
was, convinced him of the merits of supporting the cause and came away with 50
bucks for 2 x PRNs.
What that should tell you is that sales is not about somehow pushing a
button and all of sudden, hundreds or thousands of clients line up to give you
their money. This is about down-in-the-trenches street fighting for each sale,
one by one. That’s just as true for IBM as it is for the most modest business
person like the very successful middle-aged guy who sells Polish sausages on Laurier Avenue in Ottawa outside the
University building where I work.
When Kevin Rose and his co-founder wanted to populate their news
agglomeration site (the hugely successful and delightful Digg.com), they didn’t
try to send out a mass email or advertise on TV, they called 1,000s of people
themselves, one at a time, and asked them to participate in the launch.
There is still no substitute for ‘shoe leather’.
In the case of the Sens, we raised more than $1.1 million from sponsors and
another $5.4 million from land owners in the form of Seller Take Back
Mortgages. STBs are another form of bootstrap capital—essentially, the
landowners who sold us about 600 acres for what would become Scotiabank Place
and associated development, provide some of the financing for us to acquire
The total campaign including the cost of visiting with all the Members of
the NHL’s Board of Governors, preparing the bid, participating in meetings,
buying the site for a MCF (Major Community Facility) and so forth was about
$9.7 million but sponsorships and STBs significantly reduced that to about $3.2
million in cash.
Oct. 10, 2009 Sens Sponsors: Bring Back the Ottawa Senators Campaign
Corporate Sponsors $ 250,000.00 500 $500 each
Original Corporate Sponsors $ 480,000.00 32 $15,000 each
PRNs $ 375,000.00 15,000 $25 each
Total Sponsorship Raised $ 1,105,000.00
Scotiabank Place Site and Lands ($7,200,000.00) 600 acres $12,000 per acre
Campaign Costs ($2,500,000.00)
Sub-Total Campaign Cost ($9,700,000.00)
Seller Take Back Mortgages $ 5,400,000.00 75%
Net Cost of Campaign $ (3,195,000.00)
Now I hear all the time that this is fine for larger businesses like a NHL
hockey team but that it doesn’t apply to a small startup. But I find that if
you think about it for a minute, you can apply this practically anywhere.
Curved Golf Shafts
A couple of guys I know were in my office last week—they have a series of
products they are trying to get off the ground—a curved golf club, a curved
hockey stick, a curved walking stick and a curved ski pole. Their company
(pleasantly called WOW) believes that, for example, their curved driver helps
duffers hit the ball straighter while their curved hockey stick they say helps
make a player’s shot ‘heavier’. (I wrote a piece of the science behind a hard
versus heavy shot in hockey:
I cautioned them against a GO-BIG-OR-GO-HOME strategy; it almost never works
for these types of gadgets. I told them to use a go slow approach. Build a 10
cent website using a platform like Yahoo! Small Business
(http://smallbusiness.yahoo.com/ecommerce/), go to a few trade shows, ask a few
high profile folks to try their wares and endorse them if they like them (but
don’t offer them any money because they don’t have any to give away), trade
links with some friends on the web to boost their Google page ranking,
basically, do stuff that is inexpensive.
Their goal (which I set for them) is to build a sustainable PB4L (Personal
Business for Life) that within a few years will earn $120,000 per year PROFIT,
spilt between the two of them. If one of their gadgets takes off terrific. If
not, a PB4L that produces some income will be better than nothing and they will
take great satisfaction from it.
Their idea when they walked in the door was to raise $10,000 to $20,000
from, say, 30 people and then blow it all on big product orders from China, an
advertising campaign, a presence in major retail chains, investment in
celebrity endorsements, getting major distribution players to back them and so
This approach usually spells disaster. If you have a game you have invented
or a gadget of some kind, the established players in those industries don’t
want to hear from you. Parker Brothers, Milton Bradley, Nike, what have you,
don’t want unsolicited proposals—they will simply return them to you unopened
with a form letter saying ‘we didn’t look at them and don’t send us any more’.
The reason? They are deathly afraid you might claim later that your product is
similar to one they were already developing. They have found juries only too
willing to believe (often justifiably) that a large corporation has essentially
stolen an idea from a small scale inventor and damages (especially in the US) can be
Plus these established players hog all the shelf space and don’t want to
share it with you.
For every Air Hog or Trivial Pursuit there are millions of ideas, concepts
and patents that never amount to anything and often cost their inventor
everything. For every Robert Kearns, the inventor of intermittent windshield
wipers who won a multimillion-dollar lawsuit against Ford, there are hundreds
of thousands who gave up.
I believe you have better odds of making a fortune by buying a Lotto 6/49
ticket than you do with most gadgets or gizmos.
So aim low, go slow, don’t risk too much money and you may get a pleasant
surprise on the upside.
The guys also asked me if they could sell their ideas to one of the established
players. To those of you who follow my writings, you already know the answer to
that—no. Ideas are abundant and cheap. Large players buy cashflow and market
share; in my experience, they won’t pay a farthing for just an idea.
Another thing that can really assist these guys is for them to get some
sponsors. This was a new idea for them and we discussed how it might work:
1. They believe, and I agreed, that the curved driver was probably the best
gadget to start with.
2. I told them that the golf audience is a highly desired one by advertisers
but hard to reach.
3. What if they put the logos of a few sponsors on the shaft of each driver?
4. Law firms and accounting firms want to reach this audience and they have (at
least in Canada)
restrictions on how they advertise. Adding their logos and website URLs on the
shafts of these drivers would suit them perfectly.
5. Other potential sponsors might include high end autos, a beer company and
purveyors of luxury goods, maybe even resorts and hotels.
6. Every time a golfer drags that driver out of his or her golf bag, they see
these logos—they aren’t zappable like TV ads.
7. They continue to work for the life of the club—maybe five or more years.
8. The clubs might retail for $200 and cost about $60 each. Perhaps they could
put five logos on their drivers for, say, $6 per club so half their costs are
covered by sponsors!
9. If the average golfer plays 12 rounds per season and brings his or her
driver out 18 times, then the cost to the sponsor for 1,000 clubs is $4.63 per
thousand views. This is the fundamental measure of advertising efficiency,
known as CPM (Cost per Thousand, the ‘M’ in the Roman numeral for thousand).
10. That is a very reasonable CPM; CPMs can vary from $5 for newspapers to $15
or more for glossy magazines to as much as $60 for highly targeted web ads.
Mail drops in Canada
can cost 15 cents each when delivered by CPC (Canada Post Corporation) which
obviously works out to $150 per thousand. So $4.63 to deliver a highly valued
audience is a pretty good value proposition.
11. Co-op advertising is the way of the future—more brands will be sharing the
same space. If you are selling a high end car why not have an attractive person
modeling top end clothes and jewelry to help defray some of the costs. That is,
sponsors can have sponsors! Firms will pay to have their products placed in
Here is how you calculate CPMs:
Oct. 10, 2009 CPMs for Golf Driver
Average 12 rounds per year
No. of Holes 18
Use of Driver 18 100%
Views of Driver 216 per year
Life of Club 6 years
Views of Driver 1296 during life of club
Cost of sponsorship $6
Cost of sponsorship $6,000 1,000 clubs
Sponsors dollars help defray your costs but sponsors can become delivery
channels too. When the guys from WOW sign up a sponsor, the agreement might
look like this:
A. They sponsor 1,000 clubs at $6.00 each.
B. They agree to sponsor another 1,000 clubs after the first 1,000 are sold.
C. They agree to buy (at a reduced price, say, $175 instead of a retail price
of $200), 20 clubs per year for the next three years.
D. They have to pay 50% of their sponsorship on signing and the balance within
E. They pay for their first 20 clubs—50% on signing the Sponsorship Agreement
and the balance within 30 days of receipt of their order.
F. They agree to feature WOW on their Partners Page of their website and all of
the co-sponsors too. They link to all of them and WOW and their co-sponsors
link back to them—they cross promote and raise everyone’s page rankings in
If you look carefully at the above, you will see that there is an emphasis
on cashflow. Under this model, if they sign up five sponsors, they will end up
with $23,750 right up front—enough to pay for their first order of clubs, go to
a few trade shows, set up a simple website and have some money left over. They
will also be expecting another $23,750 after they deliver the clubs to their
sponsor and collect the balance of their sponsorship.
Here is their simple cashflow model:
No. of Sponsors 5
No. of Clubs 1,000
Cost per club $6
Cost of Sponsorship $6,000
Deposit $3,000 50%
Purchase of Clubs 20
Purchase Price $175 per club
Purchase Price $3,500 for all clubs
Deposit $1,750 50%
Cash on hand $4,750 per sponsor
Cash on hand $23,750 total
Just as important, their sponsors will do something with the 20 clubs they
have been ‘forced’ to buy—they will give them away at golf tournaments that
they host, they will give them to favored clients and, guess what, they have
now become powerful distribution channels for WOW.
Zero Cost Goodwill Marketing
I find sponsorship opportunities everywhere. A couple of young fellows came
to see me recently and I sketched out a plan for them to do some ZERO COST
GOODWILL MARKETING for their new business, Acme Enterprises in Nashville (the names and places and numbers
have been changed).
They wanted to do a food drive for the Nashville Food Cupboard and they
wanted to offer as an incentive to get people on board a draw for tickets to a
Titans game. They had arranged to get a private suite from the Titans for
$2,000 (a reduced rate from what the normal commercial value would be) subject
to their being able to find the money. They had 30 days to come up with the
Here is the program we set out for them:
1. They decided to support the Nashville Food Cupboard, a worthwhile cause.
2. It would not only help the Food Cupboard which was experiencing a shortage
of food and a simultaneous increase in demand as the economy worsened but it
would also help build their brand and that would help Acme earn the trust in
the community and that would mean that Acme could better compete in a tough
marketplace and sell more of their services.
3. They got a favourable rate from the Titans for a suite ($2,000) but still
had to find the money to cover it—they just didn’t have it in their budget for
this year but knew they needed to do something to help the community and to
4. Everybody who brought in food donations would get one ballot for every
item—you bring in ten cans and you get ten ballots.
5. They would hold a draw and the winners (there would be four of them) each
get a pair of tickets to the suite.
6. Then they would go out and sign up four other local businesses to co-sponsor
the food drive.
7. Each sponsor would throw in $500—for that, they each got the right to accept
food donations in their place of business (driving more traffic to their stores
and offices). Plus they each got two tickets to the suite.
8. The suite holds 20 people—four winners of the draw would use 8 seats, the
four co-sponsors would use 8 seats and the two owners of Acme would each get
one. Plus they held back two seats for the Nashville Food Cupboard—one for the
Executive Director and one for a guest of the ED—presumably a key sponsor of
the Food Cupboard would also like to attend.
9. Donations would be accepted at Acme and the other four locations for three
weeks prior to the game.
10. Every Friday would be dress down day and every employee would wear a
Nashville Food Cupboard t-shirt. On the back would be the names of the four
sponsors and Acme.
11. The employees would receive these really well designed t-shirts for free.
12. Each co-sponsor would pay 125% of the cost of the shirts—Acme would pay
nothing—since they are putting in their share in the form of SE, sweat equity.
After all, they are organizing the whole thing, putting in lots of hours
including helping the Food Cupboard’s truck make the rounds and pick up the
donated items. Plus they are driving a lot of new customers to the four
13. It would be a fun afternoon at a Titans game, hoping they can win a game
this season (the Titans are off to an 0-4 start in 2009).
14. They would also put out media releases—announcing the food drive and later
the winners with happy smiling faces everywhere.
Here is the model we sketched out on a piece of paper for the guys:
Zero Cost Goodwill Marketing
So sponsorship applies not only to large businesses like pro sports teams
but to startups and SMEEs as well.
How to Get Sponsors
For Practically Anything
For entrepreneurs and intrapreneurs working with NGOs, Not-For-Profits and
Charities, getting sponsors is always top of mind. But I have found that you
can get sponsors for practically anything. When I worked with the NHL’s Ottawa
Senators, a (hopefully) for-profit business, we obviously spent a lot of time
and effort on this. But less high profile businesses should also be looking at
this not only as a source of potential new revenues but also as an opportunity
to co-brand with other organizations for the benefit of both.
It turns out that organizations prefer being called ’sponsors’ rather than
I have often wondered why we don’t see more co-branding. If I was selling
high end cars, I might co-brand with a top fashion house and an exclusive watch
maker: sell all three brands at one time, share advertising costs (whoops,
sponsorship costs) and leverage one brand off the other two. Perhaps people who
buy those watches will like the suits or dresses and people who like the cars
will also like the watches.
Question: So why do corporations and individuals sponsor any
organization or an event in the first place?
Answer: In part, because of their internal values and, in part,
because they want to enhance their own goals. In this essay, we will address
the latter motivation.
People are highly motivated by two emotions – fear and greed. Organizations
may sponsor an event, say, because they fear, if they don’t, one of their
competitors will. This happens a lot with categories like telecommunications.
If Bell hears
that Telus is trying to ‘horn in’ on their sponsorship of, say, Opera Lyra,
they’ll redouble their efforts. The old saying is: “Treat them mean and keep
them keen.” Nothing like a little competition (and fear) to up sponsorship
What about greed? To appeal to their greed, you have to know and understand
your target sponsor’s business almost as well as they do.
An upcoming event at the Telfer School of Management (planned for March
2011) will be a conference on CSR, Corporate Social Responsibility. A group of
students organizing this event came to me asking: “How do we get sponsors?”
Well, we need to ask and answer a series of questions to help them develop a
1. What do these students have that potential sponsors want? Basically, what
do they have to trade?
• Access to Telfer and top students
2. Why do sponsors want access to students?
• Recruit them.
• Sell them cars.
• Sell them insurance.
• Sell them credit cards.
• Sell them mortgages.
• Sell them REALTOR services.
• Sell them furniture.
• Sell them legal services.
• Sell them accounting services
• Basically, sell them all the things that new graduates are going to need
within the first five to seven years > university.
3. Who sells cars, insurance, credit cards, mortgages, REALTOR services,
furniture, legal services, accounting services, etc?
• Answer this and you have your list of potential sponsors.
4. So let’s say they approach a Bank to sponsor the CSR Conference, what
should they say?
• Well, what they shouldn’t say is: “Give us money because we’re poor
but nice students plus CSR is a good cause. And, oh, we have a great website
that we can add your logo to.”
• They should, instead, follow the French dictum: “Suivez l’argent.” Here is a
model of how this all might work:
Getting Sponsors: A Model
As an example, a Bank sponsor might be allowed to set up a booth to recruit
students and to issue credit cards 1 week < the conference and 1 week >
the conference in the Telfer School of Management (perhaps in the lobby of the
Desmarais Building, a valuable location to a potential sponsor). With every
credit card applied for or issued, the students might also get a free,
co-branded Bank/CSR t-shirt, creating yet more leverage for the sponsor and the
5. If the Bank sponsor gave the CSR Conference, say, $2,500 as a sponsorship
fee, what is their ROI and is that even important?
• Yes, whether they make it evident or not, the Bank is expecting a Return
on Investment, ROI.
• To recruit a single top notch student might cost $15,000 and up through
conventional recruiting tools and procedures.
• That recruit could add to the Bank’s top and bottom lines. Let’s guess
$14,000 in his/her 1st year, $35,000 in years 2, 3, and 4 and they stay for
• Credit cards are one of the most profitable Bank lines. It is also one of the
• So if we just look at recruiting and credit cards (forgetting about Bank
insurance and mortgages as well as investment services for now), we get:
ROI = -2,500 + 15,000 + 25,000 + 35,000 + 35,000 +35,000 + N*V,
Where N = # of credit cards sold to students during the sponsorship deal,
V = the capitalized value of each credit card issued.
• We are assuming that the Bank recruits just one student
• As you can see, ROI is likely to be highly positive.
We call the above approach: Negative Cost Selling. Basically, what
you are telling each sponsor: “The cost of your sponsorship will be more
than offset by the benefits it generates and we can quantify this for you.”
The benefits are made up of either higher marginal revenues or lower marginal
costs or some combination of the two. It is your job to show that the benefits
are greater than the costs. Be specific.
If you go into each sponsor presentation equipped with this type of
approach, your success rate is bound to improve.
Christie Lake Kids, an Ottawa-based charity that helps children referred in
to its programs at age 9 by Social Agencies or the Police, is one of my
favourite charities. I have suggested to them that they may be able to offer a
national or regional chain of stores a strong value proposition based on a
co-branding approach, which goes something like this:
Feedback Loop: Suivez L’Argent
The question is: could CLK show a national chain that their volume and
bottom line will increase by more than the cost of their sponsorship during,
say, a two week period during which a percentage of sales go to CLK? Is the
fact that a percentage of sales goes to benefit the kids during that period
enough to drive more customers to their stores? Of course, CLK would have to
show that the increase in sales did not just cannibalize sales that they would
otherwise have had at other times of the year. CLK might also be able to show
that the chain’s association with the charity brings not only immediate higher
volumes and better bottom line but also new lifetime, customers who might not
have otherwise thought to shop there.
Both organizations could benefit from this co-branding
effort – CLK could get a sizeable, recurring new revenue stream and the
national chain ups its CSR status and its sales.
Find out the real story behind the founding of the NHL's Ottawa Senators