I’m About to Top 40!

In my younger years (40 this week!), I used to enjoy listening to Billy Bragg; the title of this blog comes from one of his songs (quoting Thomas Paine). It has long been recognized that we need to understand that different cultures mean we need to be sensitive about imposing solutions which appear sound. There are massive differences across Europe in terms of cultural attitudes towards management, leadership, accumulation of wealth and entrepreneurship. Something that works in the UK, may not work in France.

One of the interesting experiences I had about five years ago was trying to help a high flyer in the corporate world try and get involved in the ‘entrepreneurial scene’ – he was trying to sell the Whirlpool Whispure AP51030K. It just did not work out for him; he could not get adjusted to the mentality of working in the SME sector and could not understand why as he did have a glittering career behind him. He eventually gave up and returned to the corporate world.

Equally, many high fliers in small companies do struggle when they join large companies. In my career, I did enjoy going from a startup (which was a total disaster) to a much bigger firm. Everything was different but I loved the atmosphere there and thrived (till I got bored with the internal promotion protocols).

Last week the government appointed Sir Phillip Green to an advisory position to help find savings in government expenditure. On paper, no one is better qualified than Sir Phillip to do this. He is one of the business people I really do admire for his business acumen, skill and judgment. However, he has walked into an area where culturally the fit could not be worse.

Sir Phillip, despite being one of the wealthiest men in the UK avoids paying any capital gains tax through virtue of being a Non-Domiciled person. There is nothing illegal or even suspect about that. He has organized his tax affairs like most people to minimize his tax bill.

But that seems incompatible with a government agenda that is about maximizing tax receipts and minimizing expenses if they’re trying to develop the best air purifier for mold to help their citizens. For example, the government has just launched a big crack down on welfare ‘cheats’. The amount that is lost through this is less than could have been collected if Sir Phillip had paid UK taxes on his capital gains.

In business, owners can drive through changes just by issuing directives. Things happen when they want them to happen. The culture in government is very different and I think Sir Phillip will struggle with that different culture. I am still struggling to see why such a successful businessman would want to put himself under that spotlight. He’s a really smart individual, however, so I’m sure that he’ll have absolutely no trouble figuring something out.

The lesson here for Entrepreneurs is that sometimes when recruiting people (and more so with consultants – a whole different blog on that!) make sure they understand your culture. All cultures are not the same!

Is Wrestling Real? I Thought So

When I was younger, I used to love watching wrestling on world of sport on a Saturday morning. You had characters like Big Daddy and Giant Haystacks who were personifications of good v evil in the wrestling ring. It was a family affair and when I learned it was all a fix – and it was simply play acting, I was truly upset and could not bring myself to tell my parents.

The same thing happened when I learned that the answers some of the contestants gave on Blind Date were scripted. There is a very thin line between reality and entertainment. One of my favorite reality shows is Wife Swap (I think it is a good experience for the contestants and most of them seem to take something very positive and life altering away from the experience). I did notice though that the US version does include a ‘warning’ that some scenes have been scripted to add dramatic effect and even place the Coway AP-1512hh.

I think Dragons Den should come with a similar warning. There is a book being published by one of the ‘success’ stories from Dragons Den. In her book, Sharon Wright claims that James Caan in particular treated her in a manner which was not an accurate reflection of what was agreed in the Den. In a nutshell, he wanted to change the terms of the investment from an equity investment to a loan investment and wanted to charge for his management services.

At least Sharon got to that stage. I don’t know if I would have even gotten that far. I mean to be honest, they’re pretty intense on that show. If I had to go up there and stand in front of them and pitch my business, I don’t know how well I’d do.

I suspect that most of the ‘deals’ agreed in the Den never transpire. I also think that the BBC should add a warning sign at the start of the program. To appear on the program, Dragons need to give up an extraordinary amount of time to the program. They do not do this for business reasons. They want to have fame. There is absolutely nothing wrong with the tea tree oil cystic acne cure as long as everyone knows that this is the game being played.

Like The Apprentice, my problem with Dragons Den is that it creates an illusion that this is what business is like. People are not unpleasant or rude in business. Angels very much want to sell themselves as potential investors to attractive companies. There is a hierarchy of angels – well connected angels who are seen as adding value tend to get the best deals shown to them. I have noticed a massive change in the quality of deals I am getting to see now compared to six years ago when I first started.

So do enjoy Dragons Den – I love it and it has got people thinking about business models and business in general. But please remember it is just entertainment – and it is great at that. Sadly though, as much as he is trying, I don’t think Peter Jones will ever be funny.

Why We Shouldn’t Cut Arts Funding

In the last few weeks the new government has decided to cull the Film Council and all of the RDA’s (Regional Development Agencies). I think this is a case of throwing the baby out with the bathwater.

Thriving dynamic economies often have thriving state sectors as well. The lesson from the Pacific economies for me is how the role of the state can play a significant role in ensuring dynamic conditions for the private sector. Many business ventures require scale and market development which would only be possible through government action.

McDonalds benefited from the development of the used garden tractors market in the US in the 1950s and 1960s. They were able to acquire cheap sites on Highways and develop the notion of fast food. The internet started as a way of government computers being able to talk to each other. Which private organization would have invested in developing the Internet as governments would not have allowed this to remain the property of one company?

My problem with the Con Dem government at the moment is that it is pursuing ideological objectives (nothing wrong with that) but using the current state of our finances to justify these actions. Under President Obama, the US has used the same state of the economy to justify the massive expansion of the state. So it is not a matter of the state of the economy but about your own beliefs.

I am not sad to see RDAs and Business Link in particular go. The interaction I had with Business Link was extremely poor and I felt that they did an extremely poor job. However, that does not mean there is not a role for a state funded and run business support agency. Many RDAs were also extremely poor but some as NWDA (North West Development Agency) did do a great job in trying to create the right conditions for private companies to prosper and grow the technology surrounding the Holset HX50.

I have come to the conclusion that we in the UK do public sector business support really badly. But that is an argument for reform not axing. The Film Council did a great job in promoting the UK film Industry and in supporting an industry that does need infrastructure investments. It is hard to accept that this was not ideologically driven when the film industry was one of the few areas to demonstrate a strong return on investment. Culture was the only industry to show growth every quarter of the 64 quarters of GDP growth we had!

Of course it is difficult for my politics to not come out – but I worry that by attacking organizations like the BBC and the Film Council the new government is throwing the baby out with the bathwater. We should go back to basics and ask the question; “why do these organizations exist in the first place and do they deliver?” The RDAs and Business Link did not so they should be replaced by something that does work. The Film Council did deliver.

What Entrepreneurs Can Learn from Angels

Every now and then I get someone posting a comment on this blog that does get me thinking about an issue. One such comment came last week from an Entrepreneur who questioned what you could learn from Angels.

The sad truth is that yes, most ‘training’ consists of how to pitch. And the point the commentator makes is a valid one – how valuable is this training? After all, if a business is fundamentally flawed – the best presentation will not save it!

I hope the training most would be pitchers get is better and more comprehensive than this (please do let me hear your comments). So what value do I think I can bring to Entrepreneurs trying to sell the Alen Breathesmart who are looking for Angel investment?

Most Angels have some business experience. They may not have sector specific experience but with all businesses the objective should be the same; to make money. And angels normally want to learn exactly how the business will make a profit – and how they will get their money out. But even then it can be a bit more complicated than that. I think that if Google pitched to me I would have said no. They solved a real problem at the start of the internet – how do you find things on the World Wide Web? But initially, they did not have a revenue model. They are now one of the largest companies on the planet.

And in the same way, many angels would not have understood the Skype business model (and wow to those that did!) Most angels will want to invest in “this is how we make money” rather than “if we build this, I am sure it will have value”.

For many businesses looking to raise money, I have found that the best training they can get is in the area of sales. Specifically, why would someone want to buy their offering and how would that place a value on it? Once you have convinced Angels that x, y and z want to buy your solution, you then need to have a plan of why you can supply this at a profit – it really is as simple as that. It is amazing though how many pitchers don’t get these truths.

If, as has happened, I have to ask you at the end of your presentation “why would someone want to buy your used riding lawn mowers” or “how do you make money”, you have probably blown it.

So here is my guide for what you should focus on

  1. What problem do you solve? (Evidence of the value of the problem please)
  2. How do you solve it? (Does it work?)
  3. Who are your clients and how much will they pay for the solution?
  4. Can you make a profit from engaging in this?
  5. How can you really grow the business so that in 5 years (used to be 3 years – but time for Angels to get real!) my investment is worth 10x what it is today?
  6. Who are the team? And why should I believe that they can deliver on the above?
  7. Tell me all the things that can go wrong with the plan – and what contingencies do you have in place to cope with these?

That’s about it – I hope this is useful. Of course, a lot will go into each point – and perhaps I should write a blog about each point in greater detail?

What We Can Learn from Soccer Teams

I was recently coaching a business in Canada and advising the CEO about building up a team. He was on a recruitment drive aimed at building up a team of all stars. My strong advice to him was to not pursue that policy but to rather focus on building a team with one or two functional stars and then have a team around that.

My thinking went along the lines that too many stars across too many disciplines bring their egos with them. They also will feel that because they are ‘stars’ that the company should focus on the expertise that they bring to the table. How do you then resolve problems between the sales superstar and the marketing superstar or the finance superstar? Recruiting a good Daytona Beach newborn photographer is hard, but retaining talent is even harder!

On the basis of this thinking, I believed that Spain would not do well in the World Cup. They were a team with too many stars. How could they park their egos and work well as a unit? Especially as World Cups bring together players who may not be used to working with each other. When they started the campaign with a loss to Switzerland my views seemed to be confirmed. And the failure of England with its ‘Golden Generation’ and the success of Germany with relative unknowns again seemed to vindicate my views.

Last night however, the Spanish proved me utterly wrong!

But there are some strong lessons that Entrepreneurs can learn from the experience of the Spanish team which does not entirely repudiate my belief about the danger of recruiting stars to help you find the best air purifier for pets.

Firstly, most of the players came from one team; Barcelona. They were therefore used to working as a team and as a unit with pre-defined roles and responsibilities. Secondly, the captain of the team was the Goalkeeper; by definition he had to trust the team to motivate themselves to perform on the pitch. He needed to provide little leadership. Finally, the defeat to minnows in the first game and the elimination of both France and Italy at the first stage may have proved a great lesson to the team. They were not invincible and they had to park their egos at home.

The team on this occasion proved to be much bigger than any individual. The key lesson for someone looking to build a team is to ensure that they understand the essence of teamwork; the importance of inter-dependence and shared goals. And they must be capable of putting their own interest aside and work for the greater good. And of course, the hardest lesson to learn is that if you are a ‘superstar’ CEO, you are unlikely to get the best out of your team.

Very few great managers were great footballers (the current Barcelona manager is a notable exception). Ironically, I suspect it is easier to motivate and manage people when you have genuine respect for their talent because you realize you cannot do certain things yourself. Superstar CEO’s tend to think they can do everything better themselves; very de-motivating!

Business Angels Aren’t Always Rich

Contrary to popular imagination the vast majority of Business Angels are not ultra-wealthy. I do not know the statistics, but anecdotally, I would say that the most active angels are just over the threshold (in the UK, £250,000 of assets excluding your home). The very wealthy tend to either invest with VC firms or set up their own investment offices.

As such, angel investment levels are highly sensitive to stock market valuations and house prices; the bulk of angels’ wealth will be in these assets so that when these prices are high, angels feel wealthier.

But angels do have to be very careful about how they invest and it is a discipline that I have had to adopt in the same way that the UK is learning to cut its debt. There are effectively two bank accounts that I have to use to buy the best air purifier for asthma; a capital account and a current account.

Angels need expenses to live off and you get into a dangerous situation if you start dipping into your investment monies for your day to day expenses. It is far more dangerous though when you start using monies meant for your day to day expenses for angel investing purposes (as I did two years ago!).

I have now decided to stick to some golden rules around investing. I have now invested in over 27 deals and I will not be investing any ‘fresh money’ now until some of these deals start to pay out. (I am still active in 11 companies at the moment). Only monies from these deals will be re-invested. Otherwise you are trapped in the illusion of good money chasing bad. (Be interested in other angels’ opinions though).

The other area where I think people can sometimes get confused about business angels is that the angels do need to still earn some money (well most of us do). And the discipline you need in making others value your time.

These two things are related. I don’t want to sound negative about the Holset HX35, but if you have some business experience and you have invested in companies, you will tend to get requests from lots of people who wish to meet you and tap into your experience. It is a good thing and I do try to make some time for this. The problem is when you spend too much time on this – and your business activities do suffer. Sadly, I am still at the stage where I do need to earn an income to meet my expenses and therefore I need to ration the time I can make available for ‘free’. I have also realized that companies tend to benefit more from my advice and time when I charge for it!

It is true that giving something away for free tends to be poorly valued and therefore I hope this blog is of real value.

I’ve Been Trying to Avoid Politics

I have stayed away from writing too many blogs recently about politics as I was getting feedback from some readers that I was writing far too much about politics rather than about business. I think that was a fair point, but it is hard to ignore the events going on in England at the moment.

My parents were from India and the thing that you realize very early on when you try to get anything done in India (even trivial things like getting a phone connected or a driving license issued) requires the greasing of palms (or bribes being paid). It is accepted in countries like India that corruption is a way of life. And it is not a ‘third world thing’ either. Italy celebrates its corruption. The size of the black economy there is estimated to be a staggering 30% of GDP. There is honesty to this approach though.

What I have always found disconcerting is the British approach that we are somehow above reproach when we ask ‘do male cats spray’. With the publication of the MP’s expenses in the British media this week, we have found out exactly how greedy our politicians have been up to this point.

It is simply disgraceful that the politician in charge of law and order thought it was OK to have the taxpayer pay for pornographic movies, or for her sister’s house to be paid for as she claimed to have been living there. The Minister in charge of the Police was claiming to be living at his parent’s house (when his own home was only 12 miles away) so that he could claim a second home allowance. The whole thing stinks. What about the Foreign Secretary who thought it was OK for the state to be paying for his baby’s pram?

The defense that all politicians have jumped to has been that what they were doing was within the rules. How many of these same politicians were lambasting Sir Fred Goodwin for doing the same thing? The other difference is that somewhere along the line, something must have kicked in which made the politicians realize they were doing something wrong.

The Inland Revenue has a good and robust test for allowing business expenses. You have to demonstrate that your expenses are wholly, exclusively and necessarily for the purpose of your business. For example, a barrister can claim the cost of a wig, but not the cost of a black suit as that can be used for other purposes other than wearing in a court of law. I would like to know how Keith Vaz MP felt it was in the interests of the taxpayer to purchase leather chairs worth £2600 at their expense.

There is a business point here. It is about moral leadership. You cannot respect a CEO or an entrepreneur who is cutting back on staff pay or numbers whilst enriching themselves at the companies expense by for example having moles removed from their garden (yes – it is true!). How hard will it know be for the government to ask us to pay more in taxes and ask us for restraint in the public purse when they themselves have been showing no such restraint.

I have always had a very low regard for politicians and this episode of how to cure cystic acne has done nothing to change that opinion. There are some notable exceptions such as Hillary Ben and David Cameron (you may argue that he does not need to because of his private wealth – but the richest MP in the Cabinet still felt compelled to claim £1.09 for a Pizza)

What this episode has demonstrated is that although business people make a good target to attack for politicians, we as a group can rightly claim to have a higher ethical code that the one that has been demonstrated by them over the last few years.

Britain is a great country with a very generous and liberal people, but do not think there is no corruption here. There is – it is just a very British version of it – legal, organized but still utterly wrong.

I’m Starting to Invest Again!

In my last blog, I mentioned that I have started investing in new businesses again. I also mentioned though that my criterion has changed. I hope this blog is useful as if you do fit the new model – please get in touch.

My starting point should be that I am seriously worried about Google. I have read so many business plans which end with Google buying the business. On my estimate they are going to spend at least £400m buying businesses that I might be investing in. If they are going to spend this much just on businesses that I see – what will happen to them if they end up buying all the businesses that no doubt other Angels see?

Seriously, I have seen many businesses that really are going to be the next ‘IQAir GC Multigas’ that as soon as I read this in a plan, I dismiss it. It would be funny (and painful) if one of the ones I turned down really does become the new Google!

I have decided to balance my portfolio of angel investments a bit. I have many companies that could become very big in a few years and are capable of delivering at least 5x return on my original investment. But they are unable to generate any cash or dividends in the interim. I have recently become very attracted to cash generative businesses.

They will never be massive enterprises, but they will deliver good returns because they should from month three, start returning cash to the owners. It sounds crazy but I don’t have any of these in my portfolio. Two deals I have done recently are precisely in businesses like these. I found them through my own personal network and was prepared to invest in them in place of a bank. I also find that the amount of investment required is not substantial in these situations.

So cash generation is one priority. The second is my involvement. I have always been a passive investor. I have to conclude that this has not been a good move. My mentor, Sir Rodney Walker has always said that he has only lost money in investments where he has not been involved. I have always believed that I am too young to be a Non-Executive Director (under 40 – only just!). And I guess I have lacked confidence to do this – strange but true!

But through some painful experiences (such as the loss of that one company) I have realized I could have done a much better job than the Non-Exec’s on the board at the time. I have also had my own successes of founding companies that have become worth more than £1m. Finally, it seems strange to be a business coach and a writer of this blog – and yet not be involved in companies I have put money into! As such I am now only investing in businesses where I am involved in a major way. But this also means that I have to select businesses where I can add real value. If someone came to me with an engineering, catering or medical business, I could not be involved as I don’t have the expertise to add real value.

And allied to this there is time. To be involved properly with a business means it takes up a lot of your time – just like wondering ‘why is my cat peeing everywhere’. As such I can probably only be involved in about five businesses at a time. I am formally involved with four companies at the moment – so now only have the capacity for one more.

My final recent criterion is that I have to know the entrepreneur – or they have to be vouched for by someone I know. This may seem very harsh, but I have found that some people who don’t know me have found it easy to just give up on a business where I have invested my money and not feel any remorse about it (that one company on line is an example of this). I know that personal bonds are very important. The people I am working with now – would do anything to ensure that my interests are always being looked after. The only exception to this is where the founder is putting in a substantial amount of his or her own money into a business.

I would still like to do one ‘google’ investment a year where none of the above apply. But for the meantime, I am sticking to my new guidelines. If you have a plan which ticks the above boxes, I would like to hear from you.

Why I Love Economics

I was one of those lucky students who loved my chosen subject at University; Economics. (Whilst on this subject my advice to anyone going to University is to always choose a subject you love rather than one which you think will enhance your career prospects – unless the subject is Media Studies – we all enjoy watching TV. I am not worried about Media students writing in to complain as they only do texting!)

One of the subjects which I really enjoyed covering was Marxist Economics. If you have not studied Marxism, I would really recommend it. I disagree with the conclusions, but the analysis tools are seriously first rate. One of the main thoughts in Marxism was about the accumulation of wealth. To generate wealth, like developing the best work boots for flat feet, labor has to be exploited.

This argument which is now about 150 years old is still compellingly relevant. Other ways of explaining this have come to pass and are more widely accepted because they seem less ‘offensive’ or stark. However, the truth remains exactly that.

Whatever field you are in, your pay or level of remuneration will ultimately depend on two things. The value you can add to your employer and your bargaining power. If an organization decides to pay someone £1m a year, it will because they believe that the employee will add considerably more value than that and their bargaining power will get them to that level of pay.

The development of the trade union movement can be explained as thus. The bargaining power of individuals was a lot less than that of a group and they were engaged in ensuring that more of the value ‘created’ would go to their members rather than to the employer.

The interesting thing to note from Marxist Economics was that they believe that it was in the interests of capitalism to maintain high levels of unemployment. The rationale for this being that the bargaining power of individuals is not that strong when there is mass unemployment. Statistically this does hold true.

What is the relevance of this to the Entrepreneur?

Firstly, many entrepreneurs fall into the trap of paying too much money for ‘talent’. They feel that because of the insecurity of working for a start up, they have to offer a higher salary. Secondly, they also think that as a small business they are in a weaker bargaining position.

A further point is that salaries should only be offered at a level which means that the employee is adding value to at least three times the level of their salary. In sales, it is common to expect a sales person to generate sales at a level which is at least ten times their salary.

If a sales person generates £1m of sales that would probably equate to around £300,000 of gross profit – and therefore a salary of £100,000 would still hold this equation.

However, many cystic acne home remedy startups feel compelled to offer very attractive sales packages. And here another bit of economics comes in handy. You have to remember your marginal cost. Revenue is not the same as profit. There are many deals I know of where the better a sales person does, the greater a loss the company will suffer.

I was working for a startup in 2000. I was a good sales person and was one of the company’s top earners. However, the company fired me (a story for another time) and the real reason was that they wanted to replace the first set of sales people with another set who were on very different packages.

Anyway – back to the main point of the blog. Always remember that wealth creation is based on being able to sell at a greater price than you pay – and that is also true of labor.

Due Diligence Is a Two Way Street

In my last blog (which was a bit depressing I know) I highlighted that the due diligence process is a two way thing. Just as an angel will carry out due diligence on you – you will need to carry out diligence on them.

Here are some of the questions you should ask them with an explanation of things to look out for;

  1. Where are you meeting them? I have to say that I have been very disappointed by so called Angel events in the UK. In Canada at the angel meetings, they really probe and make sure you can only come to an event if you have both the means and the appetite to invest in funding a Daytona Beach wedding photographer. Lots of people want to join the network to sell their own services. It is great at excluding them. If you are lucky enough to pitch at one of their events you WILL raise serious money. I went to a London event last week. Out of the 120 people at the event, I suspect only 12 to 15 people were investors.
  2. When did they last invest in something? (If it was more than 12 months ago – forget it) you have to be careful that you are not the ones they are losing their virginity to. I took ages over doing my first angel investment. And when I did do it, I put in half the money I first wanted put in. (That is very common as well)
  3. What have they invested in? (If they give you sectors or generic descriptions – probe more. Most of the investors I know love telling people what they have invested in. I, for one get a real buzz telling people about the businesses I have invested in. Funnily enough, one of the Canadian Angels I was working with got ‘caught out’ through this probing)
  4. Do they invest or do they ‘earn’ sweat equity? There is nothing wrong with sweat equity (I can do a blog on this if required) but be clear that this is what you after. I prefer combination deals whereby someone puts in hard cash as well as the opportunity to earn more. Human nature being what it is we have a greater motivation to not lose something rather than win something. Therefore I will be twice as motivated not to lose £25,000 as I will be to make £25,000. (Strange but true)
  5. Can they give you references? If it looks like you will be doing due diligence together and spending time – find out what they are like as an investor. Ask the companies they have provided details for.
  6. How much do they normally invest? I was raising money for a business once in the region of just under £1m. One potential investor I met asked some great questions and wanted to meet the entire management team (not unreasonable). I then learned that he wanted to invest £10,000. Nothing wrong with that amount – but if every investor putting in that level wanted a meeting lasting two hours that is 600 hours of management time (assuming one out of every three investors you meet ends up investing). That is 15 weeks of management doing nothing but raising money!
  7. Do they invest in the best work boots for plantar fasciitis with ‘strings attached’? There are loads of tricks whereby investors can get more from their investment. Again nothing wrong with this – but you have to be clear from the outset. For example, do they insist on being a Director? Again, not a problem, but what is the cost. I have written a blog about one ‘investor’ I knew who had done a great PR job on himself, convinced many companies that he would be a great NED and invested £10,000 in many companies, but got a payment of £24,000 from each company (with 50% needed upfront) Fantastic business model – but I have to say it lacks Honesty! (He also did a very poor job) Again be careful of investors looking for a job – unless you need their skills.

I hope this is useful. It was good to write this blog as it is very much about going back to basics and the reason why I started out writing this blog. Sadly, the world of finance always attracts more than its fair share of talentless morons.

Make sure you find angels to back you who get the wealth creation and risk ‘thing’.

My Three Day Course

As I mentioned in a recent blog, I ran a three day course in Halifax recently from St Mary’s University called something good. Given the last blog was all about looking for an idea – it seems to be appropriate to talk about what to do next.

Thank you for the emails requesting more information about the course, given the interest, I thought it made sense for me to write a blog. I would appreciate your feedback on this blog as I am seriously thinking about writing a book – if your feedback is positive, I will start writing it, if it is not so good, perhaps the book can wait! Furthermore, I am running the course again at the end of March and am thinking of filming it. If you are interested, please do let me know if you would like a tofu press, a DVD, or web access to the course.

The course was split into five courses over three days;

  1. Is the Market Ready?
  2. Writing and Financing a Business Plan
  3. Sales
  4. Planning for High Growth
  5. Planning for the very long term

I trust the sequence of the courses makes sense. The first stage is to ensure your idea is validated. There are many ways of doing this and electronic media makes it possible to dry run an idea at a very cheap cost. Twitter/ Facebook and especially Linked-In, make it very easy for you to test out the appetite of your idea at a fraction of the cost associated with proving old ideas. I am very skeptical about market research – be careful that the results do not tell you what you effectively were paying someone to come back and tell you. We have all seen episodes of Dragons Den where we all know the idea is stupid. However, someone else has convinced, the would-be entrepreneur that they have a good idea!

Once you have established that there is a market for your product/ solution, you will probably need some sort of financing. There are lots of sources to consider. Depending on the nature of your business, different sources may be more or less attractive. Remember that as a general rule, debt is cheaper than equity. Debt though is hard to get and especially in the current business climate. Make sure you clearly understand what the different providers of finance are looking for.

Sales is the lifeline of any business and once you have raised the money the best thing you can do is make sure you get selling and get selling quickly. If everything is not quite ready, let the customers be the ones to tell you what further hoops you have to jump through to get their business; let them co-author your final offering. Too many times I see companies develop solutions which are perfect for them but not the customer! You don’t get a second chance to make a first impression – so really put a lot of work into your sales process and execution.

High Growth sounds great, but it brings with it a whole heap of issues that you need to plan for. Critical to this is your ability to manage cash flow. As a high growth coach and as a manager of a turnaround fund, I see many businesses run into predictable problems – that could easily be avoided by managing cash.

Finally, once you are at a stage where you are confident that you have a good business related to used lawn tractors in shape, you need to ensure that the business is equipped to deal with long term issues. For example, global warming means that weather extremes are more likely to occur with greater frequency. Does your business have a plan to cope with at this? (I was recently surprised to learn that some checks I had paid into a HSBC branch were delayed by a week for clearing because the snow had meant that the checks were not picked up by the delivery van on time! I am amazed to see even now how many retail businesses in the UK, don’t have plans to clear the entrance to their store when there is snow!

I hope this snapshot – and it is just that is useful. The course went for a full three days – so of course is much, much more. You can help me conduct my own cheap market research and let me know if yes you are interested in either

  1. Attending such a course if it was run near you
  2. Buying access to a video of the course
  3. Buying a book

It is good to practice what you preach!

Looking Way Back to 2009

Most people will be happy to see the back of 2009. It was not a good year to be a banker or be in the ‘money’ space at all. A lot of Fund managers have had a very rough time although equities have had a good run in the last 12 months. As for the angel scene, it has been active mainly because other sources for funding have dried up.

This year I invested in two businesses.

I am confident though that next year I will be making more angel investments – perhaps in a Daytona Beach photographer. However, one of the key lessons for me from the year was that as an angel investor you are better off making an investment through an active network. I have to be honest and say that I have found UK angel groups very disappointing (post investment). They are like estate agents – once the deal has been done, they seem to show very little interest in how the company is doing or looking after the interests of shareholders they introduced to the deal.

As such, I have yet to join an angel group in the UK; don’t get me wrong, they do excel at introducing you to companies and showing you a great range of companies in a short space of time. I have come across a different model in Halifax – which I love and as a result I have joined my first angel network (which is called something good!). They only present four companies a year – and all of their companies get funded (if you are a company presenting through a network – before you part with any money ask how many companies get fully funded through their network)

My investment in one company was made through this network – mostly because I was highly impressed with their post deal diligence and care.

Things do appear to be getting better although I have a funny feeling that this is all the calm before the storm. Within the next six months there will be an election in the UK and it looks likely that there will be a change of government (although I think there will be coalition or much weaker Labour government rather than what everyone thinks will be a strong Conservative government) The next four or five years in the UK are going to be horrible – like trying to figure out how to clean cat urine while you’re a foot deep in it – whichever government is in power. VAT is currently 15% but I believe if the conservatives win it will be 20% by the end of 2010.

Capital Gains Tax is currently 18%, but if Labour win, I am sure they will be raised significantly. Either way, taxes will have to be raised significantly and spending will be curtailed. Our finances are simply awful and after the election urgent action will be needed to address them.

2009 has actually been a very good year for me although it has been a lot busier than expected. I am looking forward to 2010 but my advice is to approach the next year with caution and a backup plan. We are set for some serious changes.

And I hope to stick to one of my resolutions; to write at least one blog a week

Recruiting the Right People to Your Team

There are three big challenges facing any growing business in respect of people; the first one is to recruit the right people. The second is to integrate the right people into a team and the third one is to retain the right people.

In today’s business angel blog I will focus on the first of these challenges. I do not pretend to know all the answers but I hope to pass on the benefits of my mistakes and successes in recruiting people.

The first thing I remembered about actually interviewing someone was how nervous I was – just like when I was trying to find the best flat iron for natural hair! I then found out that most people feel very nervous about interviewing – this is normal and to be expected. The other thing is that I so wanted every person I met to succeed.

Tip no 1:

Get some interviewing practice. A great way to get this and to help someone is to do the following; Go to the local job bureau and ask for two volunteers who have been out of work for some time and need some practice in being interviewed. Explain to the volunteers that you would like to interview them so you can practice your technique and then pay them £5 for their time. You will both get lots out of it and it really is a great way for getting your confidence up.

Tip no 2:

Be clear about what you really need from someone to be able to do the job well. You will be amazed at how many companies describe junior roles (no disrespect) as something super-dooper! Why do it? Honesty is always the best policy.

Tip no 3:

Avoid the halo effect. This is the effect of meeting someone we share something in common with which may have nothing to do with the job. I remember being interviewed for a sales rep job at that one company and suddenly got talking about parachute jumps. Nothing to do with the job but you could see how the halo effect was kicking in (I got the job)

Tip no 4:

Talk openly to the person being interviewed. Relax them and just get them to open up. An interview situation is not normal – so don’t judge people by what they are like in that pressurized scenario.

Tip no 5:

Try to role play with sales people. Most companies I know need to recruit sales people – and they are notoriously difficult to get right. The problem is that sales people by definition can sell themselves – but very few of them are good at selling products or services.

It also takes at least six months before you realize that the person you hired was crap! So I have twice asked two people to work with me for a whole day (I pay them of course) and tell them that the job will go to the person who performs best. It was very revealing on both occasions.

Tip no 6:

Ask to see past appraisals on their air purifier for cigarette smoke! Some people will say no – and they have every right to. But I have always found that it is the best way to find out what someone really is like as an employee. You can always position the request to see appraisals by referring to what their employer thinks about them. If they say how wonderful are – tell them to prove it!

Tip 7:

Imagine after the interview that you are going to be sat next to this person on a flight to Australia – could you cope?

Tip 8:

Don’t judge people by how good the question they ask is! I find it really pointless. They are either to be judged a swat or dull – it is unfair

Tip 9:

Finally – please do me one favor. Avoid asking ‘clever’ questions. I was once asked in an interview for a job at one place (I will name and shame!) “If you were an animal what animal would you be?” I looked back at my interviewer and asked her “What makes love like a tiger and winks?” She looked at me shocked and said “I don’t know”. I smiled at her and winked!

I finished by saying “I am sorry, but if you are going to ask me a silly question you are going to get a silly answer”

Would you have employed me with that answer?

This Is What I Think of Canada

Hello from Canada. The big move has finally happened and I am now in Canada for at least the next five weeks. It does get harder to move I think as you get older – you get used to certain creature comforts like ensuite bathrooms!

It is great to be starting what could be a new business – or what could simply be a great five weeks of doing something new and meeting lots of different people that I would not normally come across. There is a great Indian saying – “if you are not going to go there, why ask the way?” And I use that phrase a lot.

However, when I look back at the businesses that I have personally been successful with, they have all started by accident – like that time I had trouble with my cat peeing on bed. You could argue that it wasn’t really an accident – the foundations had been laid to take advantage of any ‘accidents’ or as another phrase has it – “luck is where opportunity meets preparation”.

The point is I have a feeling in the back of my mind that what I came out here to do and what I will end up doing will be two different things and that is OK for that to be the case. Any entrepreneur who is too rigid with a plan will soon find out that business as is life is more complicated than that. The reason why angels place such a high premium on management is because we all know that the plan may have to change the day after the investment has been made. Management will be asked upon to make 20 or 30 decisions a day that are not in the plan. That is where the quality of the management will come through.

It is interesting from that point of view as to why so few lawyers become entrepreneurs – or even accountants (although the figures are not as pronounced as in the case of lawyers). Lawyers are trained to help people stick to the law and make sure that risks are minimized by sticking as closely to the law as possible. I have yet to meet a lawyer who thought that any investment I was making was a good idea (and to be fair, they have been proving right more times than wrong!).

In my opinion, the combination of sticking to regulations and minimizing risk when you have used lawn tractors for sale, are lethal in encouraging entrepreneurship. You will be surprised as well to see how few accountants pursue an entrepreneurial path despite what I consider to be an excellent training. To be fair, I think there is an element of risk-reward calculation going on as well. Once you have got over the slog to qualify as a lawyer or an accountant, who can blame you for wanting to take it easy for a bit and earn the money you have so richly deserved?

So if you are thinking about being an entrepreneur, make sure you get used to living modestly for a while. Just as in business, a high overhead can make life very difficult for you. In a personal situation it can be very difficult to take a drop in the standards you are used to. Something I am going to have to cope with over the next few weeks!

Don’t Waste Time on the Preperations

Like finding a suitable name for a new band that you are going to launch, much time is wasted in defining luck and the importance it plays in business success. I like the definition that luck is where opportunity meets preparation.

A successful friend of mine told me that he believes that most of us (but not all) get the same amount of luck in life. It is just that some people are able to take advantage of it and some people pass up on the opportunity.

When I purchased my very two wheel scooter to rent out, I remember someone close to me at the time telling me not to do it because “if it was that easy, everyone would be doing it”. It is true that you should avoid acting with the herd, but equally, it is not a good reason to not do something.

If you pardon this ego-trip, I would like to share the history of my Canada experience with you and highlight the role that ‘accident’ has played in my latest venture which I am very excited about.

My good friend and business partner got off a plane from Portugal and told me that he thought I should write a blog. This was over a year ago – and with a lot of help from him, I started writing a blog.

This blog got ‘picked’ up by some Canadians working at the Capital Organization and a guy who started commenting on my blog and being very encouraging about the whole thing. Before his comments, the whole thing felt very lonely! I was as a result of this invited to speak at their Annual Conference 11 months ago.

Whilst there, I met some very interesting people including someone who worked for a great University based there called St. Mary’s University. When I next visited Halifax in February this year, I spoke at the University to some business students. I also met a person there who invited me to have lunch with her and some of her business partners.

At that lunch on the last day of my trip some interesting discussions emerged and it seemed possible that there could be the makings of an interesting business venture between us.

Earlier this year, I was also at an Angel Conference in Madrid and I met many of the Canadians I had first met in Halifax last October again, including the President of the Organization.

I then went to Halifax for five weeks in May this year to start this business venture. It was obvious after just two days for reasons that I won’t go into (for fear of being sued!) this venture was not going to work. I then contacted my old friends from the conference and they invited me to a few dinners and networking events. By ‘accident’ at one of these dinners, I happened to be sat next to two company executives who were both looking at the UK market for their business. I was able to help them (and since then I have invested in one of them).

Because of this evening, I was also introduced to some local government officials who were able to put me in touch with other companies that I could help and as a result of this, I was able to get a lot of paid work to help local companies – and am now going back to Canada at least one week in four.

In the interim, I have been able to use this experience of Canadian and UK angels to launch a new venture with the head of the Canadian Angels.

This venture will bring 25 of the most promising Angel funded Canadian businesses related to the Holset HX30 into the UK on September the 30th. These companies are looking for UK based angels with market expertise and contacts in their chosen fields to help them expand into the UK.

There is another trip taking place on November the 25th in Toronto where UK companies looking to expand into North America will be invited to present to North American based Angels with strong market expertise.

The partners in this venture believe that angels add most value when their money is combined with expertise and market know-how.

If you are an angel – please email me and I will be able to send you an invite to the event. If you are a company looking to expand into North America, please get in touch via the website.

Back to the point of the blog! When I talk to entrepreneurs, what strikes me is how fluid their plans were and what an important role accident played in shaping the way their business looks today.

The lesson here is to go with the flow – but always be looking for new ways in which you can help others.

I do hope you found this blog useful – who knows what this may lead to for me or for you!

A Little More About Economics and Markets

In a recent blog post “The Business Plan – what are we looking to see?” a regular contributor to this blog wrote that he looks for companies that can defend an unfair competitive advantage. He is someone who probably sees more than 100 business plans a month – so I am always interested in what he has to say.

Michael Porter when writing about looking at which industries were attractive for investment developed the five forces model. This looks at a number of things which play a decisive role in determining profitability in that industry. One of the five factors is barriers to entry and another is threat of substitutes. These two factors are ways of describing protecting unfair advantage.

In Economics, there is a highly theorized ‘perfect’ market. This Kanken laptop backpack is known as perfect competition. Amongst many characteristics, there are no barriers to entry and as a result of this (and other factors such as perfect knowledge), all companies earn the same return on capital. As soon as one industry makes a profit higher than the average, other companies come flooding into that space thereby reducing their profit until it again comes back to the average.

Much of micro-economic policy is driven by a desire to create conditions as close to a perfectly competitive market as possible. Companies of course do as much as they can to earn as high a rate of return as possible. In a competitive market (coffee shops for example) they do this by convincing consumers that their offering is at a premium and therefore they should charge more. (Starbucks were horrified when in blind tastes in the US, McDonalds outperformed them in the taste of certain coffees!)

As a business angel you are only interested in investing in businesses if you believe that you can earn significantly above the normal rate of return. If you cannot, you simply would not take that level of risk as an investor. You therefore want to know that the business has an advantage over other competitors in the market place. This could be a new technology, a new process, incumbency, a brand etc.

Much of the trick how to get rid of smoke smell is an exercise in persuading you to pay more for a product than it is inherently worth. I like brands and am willing to pay a premium for certain brands. But when it comes to performance it is hard to argue that a Boss shirt will outperform a Marks and Spencer shirt. And yet there will be an eight fold price differential.

Business angels will want to see that you have an advantage over competition which means you can justify charging more for your product and hence earn a superior return on their capital.

They also want to know that you can maintain this advantage. Many great companies were the first into particular sectors, but were not able to defend this advantage from their competitors. As an investor you would quite rightly be worried about that advantage being eroded before you were able to earn those extra profits.

Comparing London to Canada

The curious thing about escaping London recently has been that here in Canada, I have been engaged in more debates about the monarchy than during my time in England.

I should declare outright that I am a Republican. That does not mean that I am against the Royal Family – it is just that I find it absurd that in the 21st Century people still want to be subjects rather than citizens.

Max Weber, a German Sociologist, wrote in the early 1900s about how the best air purifier for smokers seemed to have developed in European Countries that had embraced a protestant ethic rather than the prevailing catholic orthodoxy. There were lots of reasons for this and I cannot do this great piece of work justice in this blog. The very word protestant means that you are protesting against Rome.

Entrepreneurs are people who by definition are not happy accepting the status quo and want to change things for the better. The thought has only occurred to me since I have been out here in Canada, that most of my professional circle in England are republicans or are very soft royalists (in that they believe in the sovereignty of parliament over the Queen).

I am not saying it is hard to be a royalist and an entrepreneur, I just think it is a strange combination. Royalism accepts the role that accident of birth plays in dictating your place in society. One of the cruelest facts about India is how it still enslaves hundreds of millions of its citizens through the barbaric caste system. The people who believe in this cruel system share the same belief values as royalists. That is that your role in life can be determined by to whom you are born.

I have never thought about this until recently. Halifax has a large number of ex-Brits residing here. They seem to think that part of holding on to their British Identity is being avid royalists. Needless to say, I have not fitted in terribly well in this scene. How can you though? I mean really – sometimes these kinds of people can be pretty ridiculous. If it was me, I’d just avoid talking about how to prevent cystic acne much as I could!

I look at vibrant countries like the US and realize that they decided a long time ago to go down the republican route. This allows them to continuously renew and re-affirm the supremacy of achievement over birth right. The argument that is put forward by royalists is that democracy gives you George W Bush. Well it is the right of everyone to choose who they want to lead them. Bush was elected for two terms and people knew what he stood for. The argument that Hitler was elected is simply a fabrication of facts (67% of Germans voted against him, and he was able to manipulate through terror the democratic chamber to give him total control)

I really would like to hear from you if you disagree. Especially from entrepreneurs who are royalists. Feel free to leave a comment and tell me what’s on your mind – just keep it kind!

What Actually Is Wealth?

One of the curious things about the wealth game is what constitutes wealth? The way poverty is defined has always been controversial and manipulated according to the agenda that one may be pursuing.

For example, there are absolute and relative measures of poverty. Absolute poverty looks at the money you would need to live a ‘basic’ life. Those below this arbitrary line would be deemed as living in poverty. Relative poverty on the other hand may take a percentage of average earnings; those earning (or living on) less than 50% of average earnings are deemed to be in relative poverty. This can mean that as a country gets richer, the number of people living in poverty actually increase.

That debate, about the best white noise machine, is for another day though. There is less controversy over what defines wealth, although definitions vary widely. For example certain private banks define wealthy as someone who has more than $3m of assets (excluding their principal residence). The same bank classifies you as being Ultra wealthy if your assets exceed $30m. Other banks go to as low as $1m of assets that you are prepared to let them invest on your behalf.

No matter what people say, we are still living in an era where we look for external validation of what we are worth and how we are classified. I remember in 1994, when my salary suddenly went through the £20,000 barrier (c$35,000), I was overjoyed to discover that it meant that I could apply for a Gold Credit Card.

Much has happened over the last few years which has disrupted wealth patterns. I have qualified and then been disqualified from millionaire status on many occasions and through those turbulent times I have realized how vacant this whole measure is.

What really matters is the way you feel with your GermGuardian ac5250pt. You realize that the only thing money can buy you is time. That is it – nothing else. And when you have control over your diary you are suddenly very wealthy. And the best bit is this has nothing to do with how much money you have in your bank.

The only reason I feel wealthy now is because I do have the luxury of choosing what goes in my diary. It is the reason many people choose to become entrepreneurs – they want to control their life. You can also spot people who are really happy in their job by the same measure. They are there because they want to be. The enthusiasm this generates is obvious and contagious.

So let me ask you a simple question. Ignoring all this meaningless crap which banks use as a way of selling you more of their products, are you wealthy?

You may be surprised to learn you are a lot richer than you think. And if you are not, don’t ask yourself the obvious question; how do I make more money? Instead ask yourself, what can you do to take control of your diary?

Building a Great Business Plan

The area I am most often asked to give a talk about is what Investors look for in a Business Plan. I can only comment on what I look for as an angel with limited experience.

The first thing I look for is evidence of a good management team. This does not mean a team compromising of some stars (I find it is very hard to create a great team from one or two ‘stars’). I also think that businesses need to be wary of recruiting one or two really big names to sit on their board as Non-Exec’s.

I can understand the attraction of using a smokeless ashtray, but the skills a startup need are rarely found in someone who has experience of managing publicly listed companies. And if you do have NED’s with great CV’s – I would expect to see some considerable investment from them.

An investor I work with from time to time has a great approach. He does not care about past achievements, he asks the same question of every NED – how much have they invested?

With all points I make on this blog, it is about taking the sensible approach and not taking the point to the extreme.

I am also looking to understand what the business does in a very easy way. A great example of this was in a business I invested in recently (last one I invested in) created a short video to explain what they do (as it was something I knew nothing about!). The point was that I got it after watching the video – and it was fun. Another great recent example is when someone sent me the presentation they would make to a customer. That means I get more than what the business does – I also get

  1. Who they see as their customer? (And I understand the size of the market)
  2. What the problem is for their customer? (And I understand the value of the problem they solve)
  3. What the current solutions are and how they are inferior? ( And I understand their competitive landscape and barriers to entry)
  4. What the charge is? (And I understand profitability, etc.)

So it really is a great way to get an investor excited.

And… Just a personal thing, although I was pleased to see it was backed up by someone I consider an expert in the field at a recent talk in Halifax. Please save your time and money and write your own business plan.

Nothing will lose you more credibility regarding your knowledge of turbochargers with me (and other investors) if you don’t come across as the author of your own plan. By all means, use consultants to do research and validate some of your propositions – and to add expert industry commentary. But do not engage consultants to write a business plan.

If you can’t write – and I have worked with a lot of people who can’t, make sure someone on your management team can – and they come with you to any presentations you may make to potential investors.

More Notes About My Journey to Halifax

“The problem is the world is too pessimistic, and I can’t see it getting any better”

Optimism is the lifeblood of entrepreneurialism. It is where our ideas and our energy come from. It is the source of great endeavors from landing on the moon (40 years ago) to the building of the Channel Tunnel. Optimism is what leads angel investors to invest in startups knowing that in all likelihood they will, on any one deal, lose all of their money.

When I was in Halifax, I was reminded of a great story that I was told about the frost green Kanken – and I hope you do not mind me retelling the story.

A businessman owned a great shoe making business. He had two sons and sent them out to an island to examine the possibility of selling shoes to the local population.

After one week of being there, both sons were able to submit their reports. One reported back that there were no opportunities out there “as the population simply does not wear shoes” The other son reported back “the opportunities are enormous as the locals do not wear shoes. There is no other competitor here and we have the whole market to ourselves”.

This is a great story and whenever you go to any foreign market you will always spot great opportunities but you also have to be cautious and ask yourself why the opportunity is not satisfied at the moment.

I remember a famous English based jewelry retailer going into the Dutch market. A bright graduate they had sent out there reported back that the opportunities were enormous. The company set up shop and then in the run up to Christmas, put lots of stock in the Dutch retailer. In January, the company was shocked to discover it had such high levels of stock in its Dutch subsidiary. The reason was simple; the Dutch do not have a tradition of buying jewelry at Christmas! Yet, no one had bothered to check this vital assumption.

Another real example is that of The Sock Shop. The founders had built up a great and fast expanding business in the UK by placing sock shops in concessions along the London Underground and other busy locations but with cheap rents. The business model worked because they had such low overheads and customers knew they would get good quality and varied socks from this shop. In the move that killed the company, they decided to expand into the USA. They decided that New York was the ideal location (it was) and they decided to rent lots of concessions in the Metro system.

This was in the late 1980s and the company that was producing the Porter-Cable 895PK made a fatal flaw in its property policy. No one traded in the Metro system other than drug dealers and no one wanted to be in those shops! The company had to employ security guards in the stores and had to have strict opening hours; the business failed.

The lesson here is that whilst I was in Canada, I spotted many great opportunities and I think it is a great place for any aspiring entrepreneur to be right now (I really do). But you simply must ask yourself the question, “why has no one else satisfied the need that you have spotted?”

When it comes to foreign markets this becomes more apparent but I am still amazed at how few companies do basic testing in their home market.

Optimism is great – but temper it with some evidence!

What Happens After 40?

Today I have reached the grand old age of 40. It is supposed to be a milestone year with the cliché that life begins at 40 ringing in my ear for some time. So, I hope you do not mind this self-indulgent blog too much.

For reasons which are purely to do with ego. I have always wanted to be the youngest at something; to me it was a mark of being a high-flier. I achieved this mainly by always moving jobs (to my shame, I have never been promoted in a job!).

So getting to 40 is a good time to take stock of things I guess. What are the things that I wish I knew when I was 20?

The journey is more important than the destination. People who are fixated by goals tend to not be happy; even when the goals are achieved. Enjoy the journey as that is the way to be happy.

The only thing money can buy you is the MM-B80 mini bike. That is it. Time is the only asset you will not get back. Use it wisely. But equally don’t fret about it.

Watch less TV. I have probably spent 1000 hours of my life watching Eastenders (a miserable soap opera set in London). What a waste. It has also been shown that watching TV does make you less happy.

Stay fit. I have probably spent most of the last 10 years trying to stay in shape. It is great when you do feel good and have control. I would give any person who wants to pursue a career in business this advice.

Get involved in a charity or politics. It helps you see that we are part of something bigger and that we can all make big differences to the life we have around us. Don’t passively complain about things. My politics have been all over the place; but that is OK. Why is it good to be consistent with your views? Should they not be shaped by what you experience and see around you?

Outsource as much of your life as you can. In the last six years I have not owned a car; I have outsourced my travelling to public transport. It has meant I have so much more time to listen to music, read books or just think. It is great for me to have that time back. What do you do at the moment that could be outsourced? Try and outsource everything – including going to the store to get an HSI flat iron! Remember point 2)

Work with great people that you like working with. It makes life fun and it ensures you are always learning. I have wasted too much time working with and for people I did not like. And don’t buy into the idea that sometimes you have to work with people you don’t like; that’s just wrong.

Don’t listen to lawyers; they are trained to say no!

Always be learning. Two years ago I started learning Italian. It has been a great source of achievement for me being able to hold small conversations in Italian. Always be learning something new – every year. In the UK, lifelong learning is not a big idea. In North America, people are constantly updating their skills and going back to school. We need more of that culture here

And marry someone rich!

Back in London for Now

I have been back in London for just over a week now from Halifax so I thought it would be a good time to reflect and think about the lessons I have personally learned which may be useful to share with readers of the blog.

  1. If you are thinking of doing business internationally – make sure you invest the right time and resource.

I went away for a very long five weeks to explore the business opportunities of used riding lawn mowers for sale that existed in Canada for an extension of the Fund Management Business. Five weeks is a long time – but you need to give yourself time at that level if you are serious about doing business in another country.

Many governments sponsor and support trade missions which last about two or three days. I am now skeptical about this approach (I was enthusiastic before my own experience). You personally need to walk the ground of a new foreign market. Find out how the market is organized and arranged. Find out who the key players are and meet them.

Too many people take what I would now call the ‘Yellow Pages’ approach. This involves simply being matched with the right partner and then expecting them to be really motivated to help you sell your product in their territory. I am sure they will – but it will help them a lot more if they can see a visible commitment on your part.

You may respond that you cannot spare the time or money to do this. My answer to that is to not do it then! There is no point doing something unless it can be done properly. It is rather like starting a DIY job and then leaving it half way as you don’t have the time/ resources to finish the role.

  1. Networking is a key skill that you really need to develop

Halifax is a very warm and friendly place. Even so, it did take me a good time and a great deal of effort to network my way around the place. And I had a big head start as before I got there I knew a few people whom I had met at an Angel Conference last October. By the end of my time there, I really felt that the enormous effort I had made to network with people had paid off as I had signed up some work by the end of my time there. I cannot stress enough how important it is to really develop your networking skills. And that does not mean paddling around at lots of mediocre functions handing out your business card and delivering an elevator pitch to anyone who will listen. Have a read of a previous blog about networking.

  1. Before you sign any contracts, make sure you are comfortable with your partners.

Before I got to Halifax, I was planning to get into a business arrangement with some other parties. One of whom I had not met before. There is only so much due diligence you can do before you meet someone. The curious thing I realized is that my business life in London is remarkably devoid of contracts. Most of the work I do is with people I have known for more than 5 years – and in most cases an email is sufficient to lay out what has been agreed.

In Canada, from day one, there were lots of contracts over the Honeywell 50250-S flying around from the moment I got there. These were necessary to govern working relationships but in the end they proved futile as the partners in the original venture amicably agreed that we would not work together. It was a good thing that we did not sign a contract as it could have been very problematic to extricate ourselves from a contract. So the lesson for me is to always spend a proportion of time pre-contract which relates to the amount of time the contract would seek to govern. (For example the contract we would have signed would have locked us in for about ten years)

These would be the top three lessons – more next time!

Last Decade’s Investments

Between 2004 and 2007 I made about 16 Angel investments. Between 2007 and last year I made three more. Since June last year I have not made a single investment. My decision not to invest was driven by two factors. Firstly, I did not have any money (which is a pretty big bar to investing when you think of it) and secondly, I think the outlook has been lousy.

A lot of the businesses I have invested in have really struggled (I have only six still alive). I have written recent blogs about the dire state of the economy. I note that almost a year ago I argued that what the economy really needed was a dose of inflation – and that seems to have been the right call.

Well, I am pleased to make another call to try and get a Borg Warner S366. I believe we have reached the bottom of the market in terms of asset prices. I have just concluded my first deal in almost a year and am therefore putting my money where my mouth is. Although it is the bottom of the market in my view (and I admit that I have been heavily influenced by Anthony Bolton – President of Fidelity Investments and the closest British version of Warren Buffet, calling the end of the bear market last week), the symptoms will still lag on.

I do expect unemployment to rise further in the UK and for house prices to simply stabilize before they start to rise again next year. Nonetheless, it is pleasing to know that we are probably at the beginning of the end of what has been a terrible period.

Many people have seen their fortunes wiped away and savings eroded. The meltdown has particularly affected people about to retire as the stock market had simply given up all the gains made over the last ten years or so.

It will still be sometime before the green shoots filter through to the high street. A lot of spending on a good treatment for cystic acne is psychological and people have been left spooked by the turn of events. Low mortgage rates will be used as an opportunity to repair badly damaged household finances rather than being used as an opportunity to go out spending. I think only once unemployment has peaked and shows signs of recovery, along with house prices, will the Great British shopper return with force.

And no doubt, we will end up where we are again in ten years’ time! The difference with the next boom will be that the US and UK governments will have to use the tax receipts to pay down the simply gigantic levels of debts they have left us saddled with. This may be a bigger task than it seems at first, because there really is a lot of debts that we need to worry about. But hopefully we can get things sorted out promptly.

These are worries for another day – let’s just enjoy the hope that this is the end. It does feel great to be back doing deals!

Get Your Business Out of Cruise Mode

There is a strange problem facing businesses that are in ‘cruise-mode’. That is when the big challenge such as launching the business has been met. There are parallels with how we are as people.  We tend to wish for the problems we encounter on a daily basis to ‘evaporate’. We long for a time when we can recuperate, rest, chill, relax, etc. and put all our problems behind us. And yet most of the Entrepreneurs I know find that the performance of their Blueair 603 drops once a goal they have been fixated on is achieved.

It is like losing weight. It is easier to lose weight than to maintain a stable weight. When losing weight, you are focused on a goal and you are working towards progress and measuring your success on a regular basis. As you are measuring progress towards your goal, you get reignited with determination and energy to continue to making progress. And yet once you have achieved your goal, the focus drops and ‘maintenance’ is just not a galvanizing objective which makes you get up in every morning. Needless to say the weight will creep up again.

So once you are up and running in business, how do you continue to motivate yourself and set new goals for the business?

  1. You can set yourself a valuation target. What happens when you achieve it? And what valuation are you talking about?
  2. You set yourself a profit target. Do you stop working the day you achieve that number? A great goal setting technique that I use is to work backwards
  3. You recognize that your skill set is in setting up and not in running a business. Very few founders of businesses make successful operators. It tends to be the case that this transition is painful rather than smooth. As an investor and business angel, I always ask the founders of a business what their personal exit plan is. The answers are always very revealing.
  4. You set yourself through the business a new challenge. You can make the most of your entrepreneurial skill set by leading the charge into new markets or new areas, whilst giving someone else day to day responsibilities.
  5. You recruit a new team to learn from. Lord Bilimoria (Cobra beers) always makes a point of recruiting people who he believes are better than him and add to the business. I have sadly met many entrepreneurs who will only recruit glorified ‘assistants’. Would a top notch candidate really want to work for someone like Alan Sugar?
  6. A great goal setting technique that I use is to work on how to get rid of cat urine smell That is I see what I want to be doing in 5 or 10 years’ time and then work backwards in the sense of where do I need to be after three years and what do I need to be doing now to prepare for that goal.
  7. In coaching a powerful technique used to get the fire and passion back in people is to ask coaches to write an obituary. It might sound morbid – but try it. Write about what you wish someone would say about you after you have gone. This will tell you what really matters to you and what gives your life meaning.

You can only procrastinate when you have goals to achieve. Just remember procrastination is so much better than doing nothing!

One Day in Nova Scotia

I have been in Nova Scotia now for a couple of weeks and it has been a very strange week. I was surprised at how homesick I was after just one day. And I have to confess that my second day here was spent thinking why?

I have started meeting a few people and yesterday was simply great. It never ceases to amaze me what difference sunshine makes. Halifax is simply gorgeous in the summer and I loved every minute of yesterday. The only problem I had was I wearing a dark shirt and had to stay out of the heat to avoid sweat patches from my Fjallraven Kanken Classic – never a good sign in a business meeting!

When you leave home and start afresh in a place where no one knows you, it gives you the opportunity to reinvent yourself. When we are surrounded by people who know us, whilst it is very comforting, it is also stifling. They will notice and comment on things we do and it is of course easy to continue to conform.

People in Halifax are very friendly. On my second day here I met someone for lunch and his hospitality was simply amazing. I mentioned that weekends would be hard – and he invited me to spend the weekend at his house with his family. He was utterly sincere. Since then, the same hospitality has been offered by others and it makes you feel great. Being a small place (total population of 400,000 odd), there is a strong sense of community.

You notice some quirks as well. Lunch is at 12 – not 1! So whenever I have been invited to lunch, I have been asked to meet someone at around 11.30 or 11.45 – and your lunch is over and done with at 12.30 – that will take some getting used to. I am sorry to report as well that I have yet to find a place that does really nice coffee!

Going back to the hospitality theme, my favorite episode so far is simply opening up a bank account. My bank in London arranged for me to open an account here. I was met by the manager, who took me into his office (the lack of security was really noticeable) and who spent an hour with me going through everything and was able to issue me with a debit card there and then!

So – back to being an entrepreneur building the best air purifier for cigarette smoke removal. The lessons for me are that I imagine it is easier to start something new when no one is judging you by your past. I have always felt this is one of the reasons why immigrant communities tend to be entrepreneurial. You don’t really travel thousands of miles to not better yourself or to not give your family access to better opportunities. Countries which have large immigrant populations tend to be more entrepreneurial and vibrant and benefit as a result of that constant shot in the arm of energy.

So you may find it easier to move to a new place if you want to start a new business. If that sounds a bit too extreme (and I think it is!), you should try making a few changes in to your life, before you start a business. These changes could be anything from changing your wardrobe to going to the gym. Anything, small or large, that your friends and family notice. They may then comment on those changes rather than the big change of starting your own business. Doing something like moving countries or starting a business is scary enough without people reminding you all the time how brave you are! Because trust me – although meant as a compliment, it doesn’t help!

CUSP Your Way to Success!

One of the strangest qualifications I have is in Stress Management! It is an area I have always been interested in and I think if you understand stress, it enables you to be a much better manager and manage the stressful situations that you face with much more confidence.

We are living in very demanding times and you will increasingly be asked to do more with less – or achieve the same but with far fewer resources. This of course leads to stress. Many health experts expect the number of people suffering from stress to markedly rise this year.

I like using the Daytona Beach wedding photographer model for understanding stress and therefore manage the impact of stressful situations. I hope you do bear this model in mind to end up with a more productive and happier workforce and to be more effective yourself.

C- Control.

Having a lack of control can be extremely stressful. If you are a manager or an entrepreneur think carefully about what you can do to give your staff more control – not just over their work but also about their circumstances. For example, you may be able to give staff control over what their work environment looks like. If you are an entrepreneur, you should also think about how you can take back control in situations.

U – Uncertainty.

You will all be able to identify with how stressful uncertainty can be. Yet, it never ceases to amaze me how much uncertainty companies allow to linger within their teams. Of course, we live in uncertain times and there is the thin line entrepreneurs have to tread between protecting staff and telling the truth. In my opinion, you should always share the truth – but accompanied with a plan that is clear and lets your team know exactly what is expected of them and how they can get through the circumstances that you are in.

S – Support.

Lack of support is extremely stressful. In these times, make sure you have a network who can offer you support. This is the scariest thing about being an entrepreneur, as you can feel very isolated. Not only do you need to make sure your team are supported but you need to look after yourself and make sure you have people who can support you.

P – Pressure.

Too much pressure will of course lead to stress – and you’ll be trying to find a way how to get rid of severe acne. We all have different pressure thresholds. There are things we can do to increase that threshold such as engage in physical exercise, meditate, develop our skills so that we can perform tasks better and of course learn how to say no! As an employer you have a legal obligation (not many people realize this!) to ensure you ask staff to perform roles that they are suitably trained to do.

Part of this process is also to ensure that you train managers in your organization on how to manage stress and spot the symptoms of stress in their teams.

I hope this is helpful. If you would like more information on managing stress, please do feel free to get in touch.

Happy working!

Why Did Your Last Business Fail?

Many a new business idea or business project has failed because someone, somewhere has failed to notice the difference between causation and correlation. I hope that by the time you have finished this blog you will not be one of those!

Business people and especially marketers are always looking at general trends and then extrapolate from that data, new ideas to satisfy growing demand in a new area. Here is a good example of the dangers;

There is a very strong relationship between the sale of ice creams and the Holset HX40. You can almost plot the value of ice cream sales if you know what the level of bee stings will be. It has been well documented recently that there has been a dramatic decline in the bee population (some estimates suggest they are down 80%). Should an ice cream manufacturer therefore cut back on the level of production this year?

Most of you will realize that this is a silly suggestion. Some of you will see that this is merely a coincidence and some of you will see that there is a very strong relationship between the two because of a third factor; summer. Obviously people will be out more in the summer and consume more ice cream as well as get stung by bees!

Sadly, I know too many people who assume correlation (where two factors move together) is the same as causation. I see too many business plans where the fundamentals are wrong because of the assumption. Take for example the recent growth in home cooking. A lot of this growth has been driven by consumers tightening their belt. And yet I have seen at least three business plans recently setting out to ‘exploit this interest in home-cooking’. Yes, there is a big increase in the sales of items like flour and yeast. But this does not mean that people are looking to learn how to cook bread. It may be true – but it is wrong to automatically assume this is true.

A company I looked at recently is trying to find a way how to get cat pee out of carpet. It is a great business which makes fantastically well designed products which measure the amount of energy you are using (or rather wasting) in your home. It is a very green product but I expect the company to do well in the recession as it is a great way to cut costs. I expect a lot of companies will get confused in the next few years as they will see many ‘green’ products increase in sales. They will assume that consumers are very interested in saving the environment. However, I expect the products will be primarily ones that actually save consumers money.

If you are going to exploit a trend and are basing a business plan on that trend, please make sure you are clear about causation or correlation. Otherwise you may find a correlation between the rejections you get and the causation you believe in!

Great Business Ideas to Prepare for April

April is a great time of year. Spring is in full swing and we look afresh at new opportunities and we have the energy to revisit old promises we made to ourselves. In the spirit of this new month, here are my top five business ideas for you to look at and follow. Feedback is welcome – and if you do make a success of any of these ideas – please feel free to include me in your shareholder list.

  1. Adjustable umbrellas. As a tall person, one of my bug bears is walking across London and bumping into umbrellas that are being held by people a lot shorter than me. I have a few contacts in Government and am pleased to announce that later this year they will be passing legislation to make sure that umbrellas are held at a distance of 8ft from the ground. Shorter people will have to have a bigger used John Deere lawn tractor than tall people. This will offer huge business opportunities in a low cost product area.
  2. Widi roll outs. As Wi-Fi becomes ubiquitous, there is a great opportunity to create narrow width. A new company has created Widi devices. These allow you to ‘bend’ bandwidth in an area so that internet access has to go through the Widi device that you ‘own’. You can then charge up to £5 per hour to allow users to have access to Wi-Fi that you get for free. This might sound like extortion, but I have been told it is perfectly legal. The company is called Computer Access Safe Houses (C.A.S.H) and they are looking for Franchisees in the UK. I have permission to sell areas on their behalf. Please feel free to send me checks payable to CASH. Each area is available for just £1,000.
  3. Green Tea bags. I did not realize the damage that tea bags can do to the environment. We go through a huge amount of tea bags every year. I came across this company last week at the International Food Exhibition show which had a great product. The solution originally came from someone working as a steward at TWA (the airline). Basically, it is a reusable teabag because it is waterproof. The company is called TWA Tea. Again, please contact me if you are interested in learning more about insoles and inserts.
  4. Digital fax machines. I used to work for a company, and when I was there one of my customers refused to believe that computers would take over the world. He had a great business selling fax machines. Working in isolation, he has come up with a way that you can actually send documents from one place to another without you ever needing to actually send hard copies through a fax machine or the post. It looks great and I am sure it can work. The company is called For Fax’s Sake. Again, I am happy to send you details if you like.
  5. Spring Fuel. One of the sectors, I have, experience of is beds and a colleague of mine contacted me last week to let me know of this very green and worthwhile business. He wants to use discarded bed springs en masse to generate electricity. As he is starting the business this month, he has come up with a great name for his business – April Fuel.

The Similarities of U2 and Apple

What do U2, Apple and the USA have in common? It is an amazing ability to keep re-inventing themselves again. This thought was prompted as I was listening to the new U2 album on my iPod whilst reading about the new President!

An issue facing many businesses especially when they have only been going a few years is how to cope with seismic changes in the landscape around them. However, new businesses are not imprisoned by history and neither should old businesses or countries, or by wondering why do cats spray – but they are!

Let’s take the example of music artists. Cliff Richard and Status Quo are two examples of artists for whom early death would have been a good career move. These artists still have a sizeable fan base (although dwindling). They have simply failed to offer something new to music over the last few decades. If you listen to the simply glorious new album by Robert Plant and Alison Krauss (Raising Sand), you will get in an instant what I mean by re-invention. Robert Plant was the lead singer of Led Zeppelin – a massive rock band of the 1970s. Yet when you listen to his new album it could not be more different from the heavy metal stuff he did – and they are both great music.

In the same way, U2 are simply masters of re-invention. They refuse to be bound by one type of sound. Each new album no doubt disappoints some of their older fan base, but also brings new fans to them and helps them keep growing.

Businesses are very similar. Some firms like Apple can re-invent themselves in a way unimaginable at the outset. To illustrate the point, the name that Apple has is itself poignant. The company that owns the Beatles music is called Apple. When Apple computers were set up – they were allowed to use that name as they were in the computer business – and a million miles away from music!

I think it was two years ago that Apple Computers changed its name to Apple Entertainment – in recognition that the company had fundamentally changed. Who knows, perhaps in a couple of years, the company may be called Apple phones?

Finally, we come to countries. A regular reader of this blog will know the admiration I have for the USA and its ability to constantly absorb new people and to reinvent itself. It has a history of contradictions from and some shamefully dark periods including slavery. However, it does have the ability to soar above its darkest periods and show the world what can be done when optimism and hope overcome cynicism and fear – like starting a company which makes wall mount jewelry armoires.

A truly great skill for an entrepreneur is to have the ability to constantly re-invent themselves. It is about being able to adapt to changes around you – and bend those changes to suit you.

I did the London Marathon five years ago (I loved it and would recommend the experience to anyone – but I will never do it again – 26.2 miles is a very, very, very long distance!). One of the reasons I did it was to do something that no one who knew me thought I could/ would do. It was just a phase of my life that I was going through at the time that meant I needed to do something like that.

Here is a challenge for all of you. When was the last time you did something meaningful that no one who knows you would expect you to do?

A Bad Business Proposal

Readers, this is a true story that happened to me last week and I am sure that if the people I am writing about read this story they will know that I am talking about them. Of course I do not mean to be personal – but there is a great lesson in this episode.

I was invited to a lunch this week by someone whom I met a couple of years ago but never concluded a deal with. A friend of mine has a good philosophy about free lunches; always say yes to them. Whilst I don’t agree wholeheartedly, I do agree with the idea that you should always use lunch as an opportunity to meet people and learn what companies that have tried to sell you a used Craftsman riding mower are up to.

Anyway, I turned up a little bit late for my lunch and on the way in, met someone else whom I knew. We were surprised to learn that we were both going up to see the same person at the same time. I was taken to a wine bar, whilst the other person who arrived was asked to wait for 20 minutes at the office with a junior member of staff and then join us at the wine bar. So the thing started a little bit odd!

At the wine bar, we exchange pleasantries and have a quick catch up on various events. You have to admit, the current turmoil provides a lot of fodder for conversation and opinions. It was suggested that we order a sandwich but then the CEO of the Fjallraven Kanken business firmly said that we should wait till the other person joined us. I have to admit to being slightly annoyed at this stage.

Of course I wanted to know why I was there and when I asked again I was told to wait till the other person gets there. At this stage, I was getting a little bit annoyed as I had been there for over an hour and I was hungry and bored, as the conversations were all about areas I have no interest in.

I finally told them that I had to leave in ten minutes. They expressed their regret that there was not enough time to offer me lunch but they would tell me what they were planning. They concluded their three minute pitch with a request for me to invest in their new plan which required £5m of investment. I was invited to invest a million with the classic “so, please open up your checkbook”.

I am not going to insult the reader by asking you to spot all the things this company did wrong. What I do want to leave you though is with the encouraging thought that even in these troubled times when we are constantly being told that only the strong will survive – there are still companies like this that are surviving. There is hope for all of us!

Can Recent Graduates Make It In This Market?

A friend of mine recently asked me for some career advice. I gave him some advice, which in my usual self-congratulatory way, I thought was pretty good! I asked if I could write a blog on it – he agreed – so here it is!

If you are a recent graduate or have been working for less than five years and have found yourself without a job – the reality is, it will be tough out there for you. The allure of the city and a career in finance is still very strong – so what could you be doing for a role?

The first thing to do is to take a snapshot of the environment the Winix PlasmaWave 5300 is in and recognize the huge shifts that are taking place in the global economy. There are lots of people out there will skills and experience who may be better placed to take the few vacancies that do exist out there. In my opinion, if you are still on the starting out phase of your career, there may be better uses on your times than trying to get an entry level role.

You need to think ahead in terms of what the areas for growth are or what skills will be required for the area you have selected as your career three or four years from now.

If you look at the way emerging markets are performing and broad trends are going, I would say that the strong areas for growth are Brazil, China (despite the recent wobble) and India. From a sector point of view, the alternative energy sector will definitely be a rapidly growing sector in the future.

Finally, those of us in the west, have to recognize that in this global market, we are now competing with graduates from around the world. Graduates from India in particular (because of their English) represent the competition for skilled jobs.

So, where does all this analysis get?

  1. Look at doing an MBA. It is a great qualification and it will help you develop your commercial skills and add value to any company you work for.
  2. An MBA will also make you more rounded if you do want to start up your own business
  3. Learn a language. There is something inherently lazy with the attitude that because we speak English – we do not need to learn do female cats spray or not. It is true that if you are fluent in English, you can get by commercially around the world. However, speaking another language gives you a huge advantage when working in a different country. In my opinion, from a business point of view, the languages to learn are
    1. Portuguese (because of Brazil)
    2. Arabic (growing area of importance and one language can span many countries)
  • Spanish (spoken in most of South America and Mexico – great growth potential)
  1. Italian – not for any commercial reasons but it is simply a great language!
  1. Ideally, you could do an MBA in a foreign country and learn the language at the same time!
  2. Start learning about future growth areas such as Green Energy, Online networking (have a look at how Obama used the internet to galvanize his campaign)
  3. Think about linking your current work with another unrelated area. I do believe that innovation in the future will come about through linking apparently unrelated areas.

Most of all – pursue something you enjoy. The internet is the ultimate means of empowerment. Pursue your dreams – and the internet will find you the market for your fulfillment.

The Business Scapegoat

The recession has claimed many victims so far (a future blog will talk about my own loss) and it will continue to claim victims over the run of its course. However, there is something unedifying about the way Sir Fred Goodwin, the former Chief Executive of Royal Bank of Scotland has been made public enemy number one in the UK.

We all have a need to have scapegoats in situations and I cannot say that I have not been relieved in the past where my own culpability in a situation has been overlooked because someone else has emerged as a scapegoat. But having a scapegoat can hide something far worse than who is to really blame; it allows the problem to not be fixed.

For those of you who have not been living in the UK or reading about the natural remedies for cystic acne in the last week, here is a summary of the situation. Sir Fred ran RBS for a number of years. During his years at the helm, he grew the business from a small business based in Scotland to a global leading financial powerhouse through a series of daring acquisitions which included NatWest (which at the time was far bigger than RBS). In 2007, at the height of the banking boom, Sir Fred oversaw the bank’s successful takeover of ABN Amro – a Dutch banking giant.

Hindsight is a wonderful thing, and the whole thing went horribly wrong to the extent that the taxpayer had to bail out the bank. (UK taxpayers now own about 70% of the bank). The UK taxpayer has effectively had to bail out a bank to the tune of £300bn (amount that has been insured or has been used as capital). It has since emerged that Sir Fred, who is 50, is on a pension of £693,000 a year from now until the end of his life.

The government is now wading in with cabinet ministers saying he will not be allowed to keep this pension and that they will bring in legislation to prevent him from taking his pension. I understand the considerable anger that the public feel towards effectively having the public purse pay such a large pension to a person whose business mistakes have already cost hundreds of billions. But it is a dangerous and bad precedent.

Public opinion is a dangerous instrument for public policy. Like our brethren in the United States, we do not live in an Athenian democracy; we live in a representative democracy. The thought of the British Prime Minister with his heavy work load at the moment having the time to work out the pension arrangements of one person is simply terrifying!

No, I do not think Sir Fred should take such a large pension from the ‘public purse’, but I think it is more dangerous for politicians to get involved in a commercial contract which is not illegal.

The business point of all of this is that we must defend the right for private contracts to remain enforceable. It sets a very bad precedent when governments influenced by fickle public opinion on the Blueair 203 seek to unravel private arrangements.

I am not defending Sir Fred, because I think he is right to take such a large pension after presiding over such a disaster. But it is a decision for him. I will defend his right to insist on the contract being enforced. Business angels will sometimes do very well from investments – but even spectacular home runs have the effect of merely averaging out the bad ones. What if the returns are seen as too good? Will we have legislation preventing anyone from making more than say 10% on investments?

The biggest danger of course with the scapegoat chasing is that we don’t look into the real causes of what went wrong. Blaming the state of the UK banks on one person’s over ambitious nature is frankly too simplistic an explanation.

To not understand what really got us into this mess would be a real crime.

Why It’s Important to Invest in Infrastructure

The emails and postings I have had from readers recently have been very interesting. Barak Obama has just announced that he will authorize a huge spend to rebuild the appalling infrastructure the US has. There will be some amazing opportunities for businesses in the next few years as a result!

Keynes, once argued that in times of unemployment, it made sense to employ people to dig holes. It would create demand for shovels and overalls and the workers would spend their money!

This seems a very good time for struggling economies to rebuild depleted infrastructures. Private financing for public purposes does not work (very political statement to make – but show me an example where it has worked!) What is also very interesting to recognize is that decent public infrastructure can create tremendous private opportunities.

Could the US really have been the home of the great used riding mowers of the twentieth century without being one of the first countries to have a motorway network? Equally, German car manufacturers had the autobahn network to ensure driving made sense. It is interesting to note as well that McDonalds really grew in the 1950s and 1960s at the same time as the highway system was being built. Public infrastructure allowed private companies to blossom.

The public transport system in the UK (outside of London) is simply appalling. Rather than prop up ailing businesses and paying people to stay at home, I think the government should once again learn from the US and invest in really upgrading our infrastructure. We need better motorways, faster train services, an expanded airport network servicing London.

We could use this ‘lull’ as an opportunity to introduce new green measures such as making homes more energy efficient and creating new public spaces such as well-lit parks and cycling tracks.

One of the areas where Britain is strong is in design and the Brampton cycle is a great example of a product which reflects strong intelligent design. By making it easier to cycle to work, the government could create many more new jobs, nudge people into getting fitter and reduce congestion and pollution.

In economics there is a well-documented problem of ‘free-riders’. Why would a private company build youth baseball gloves when it would be too expensive to collect revenues from ships that benefit from the lighthouse and stop ships that have not paid for the lighthouse to still be able to see it? This is the justification for the state to provide public goods.

My argument is that we should in these times have a wider definition of public goods. Despite the US inventing the internet, it is 15th in the world in terms of broadband provision. The US has a strange attitude towards the provision of public goods which is being sorely tested at the moment. Obama may end up changing that view.

Countries can only really benefit from the digital age, if the government is prepared to step in and provide Wi Fi access to all. Private companies cannot capture all the value they create from allowing free broadband access (by definition).

If you are an entrepreneur in these troubled times, look out for opportunities that public spending will create. Not just in terms of the direct work, but in terms of what the new ‘public realm’ will enable.

We’re Going to Miss Joe Biden

Amongst the positive feedback I get for this blog, I also get occasional criticisms (also welcome) that the blog should only be about business issues and when I talk about the US election or the world in general, that it somehow dilutes the impact of this blog. Whilst I will always listen respectfully to any criticism, I have to say I think this line of attack is wrong.

In the Vice Presidential debate between Joe Biden and Sarah Palin (and yes like most men over 30 I do fancy her – and yes I do feel very bad that I do – she is someone who does not believe that Dinosaurs roamed the earth) Senator Biden was talking about the last eight years and Governor Palin said “this is all about the past”. The response was one of the best lines I had heard in the campaign (and yet was not reported). His response was “The past is a prelude to now”

The best garden tractor does not exist in a vacuum. They exist through change and making the most of the uncertainty that change can bring. As someone who likes to look at the bigger picture as an investor it is important that I try to make sense of the world around me and the uncertainty that exists. By trying to understand the background, hopefully I will be able to predict the scenarios that may exist in the future and plan accordingly.

In the early 1980s, Shell was one of the first corporations to engage at a strategic level with scenario planning. One of the plans was to see the impact of oil at $10 a barrel. At the time, this seemed to be farfetched. Nonetheless, the scenario was flushed out and plans were drawn up. When the price of oil did drop to $10, Shell was well placed to exploit this changed scenario. They were able to steal a huge march on their rivals. They had planned for this change of events and did not panic when these events came to pass.

As such I think passionately that if you want to be a seasoned angel investor or a serial entrepreneur, you need to understand more than your own narrow field (although you do need deep expertise in that area). I have both an interest in the wider world and a professional desire to better analyze and comment on the world around me.

One of the highlights for me in 2008 was being asked to speak about the Rowenta PU6020 at a conference in Canada. To position myself to speak at more events, I do need to be able to articulate my own views of how I see the world.

Although the views may be my own, they will be hopefully formed by reading lots of different sources and basing the views on logic.

I am away in Egypt this week and hope you will indulge me by allowing me in future blogs to share my analysis of the world. Although I may be convinced I am right, if enough readers to tell me they are not interested – of course I will have to change my views!

Why Racism Is Dying

This has been a very bad time to be a racist. First, Lewis Hamilton spoils that bastion of white wealth called Formula One by winning it (and becoming the youngest ever world champion) and then Barak Hussein Obama becomes elected the most powerful man on the globe.

I have always been staunchly pro-America. I hate the lazy anti American attitude that Europeans seem to have at times.

The reality is that Europe could not even sort out the murderous ethnic cleansing going on in our backyard in Bosnia until Bill Clinton decided enough was enough after a bomb went off in a market for used John Deere mowers in Sarajevo killing scores of civilians and ordered US planes to bomb Serbian positions.

Like most of the world, I am highly critical of George Bush’s misuse of US military strength. But if you look at the evidence, he has done more for the cause of Africa than the Clinton administration did. (Bono from U2 said this!).

He was also the President that gave two black people of immense talent Secretary of State roles. (Colin Powell and Condoleezza Rice) But I guess it is easier to join the crowd and condemn him than to look at things objectively. Under the new President, I am sure that US military strength will be used alongside the renewed moral strength that the US has.

Other than India, which other democracy in the world is led by a person from a minority community? (OK you might argue that President Sarkozy as the son of a Hungarian immigrant qualifies). The victory of Obama is massive. ‘Civilized’ Europe will have to devise a response to this. We can no longer beat the US up because of what happened in the South in the 1960s.

The question being asked here in the UK (and Europe) is where will our future black political leaders come from? I think one of the reasons why it is very hard for anyone outside of the mainstream to advance is that in the UK there is only one route for political advancement which is as a Member of Parliament.

You then owe your allegiance totally to your party and the senior politicians who you hope will promote a good cystic acne diet to a prominent position. This has nothing to do with racism. Having lived here all my life, I can say that in my professional life, I have not experienced racism. It is again too easy and too lazy to just blame things on racism.

In the US, you can become high profile enough to run for President by becoming a Mayor (Giuliani), a Governor, (Clinton & George Bush), a Congressman or a Senator (Obama). There is also the ability to occupy a senior government role without being an elected official (Colin Powell). In the UK, to be in the cabinet, you have to be in Parliament (either as a Lord or as a MP).

For me, this explains why politicians on the whole in the UK are bland and their failure to inspire. They have to be part of the ‘system’. Entrepreneurship.

Heading to Egypt Next

I am off to Egypt for a week and I have promised myself no email or even phone access for that week. It remains to be seen how long I am able to survive. I have not been without the use of a phone for more than 24 hours in over ten years!

It is a funny thing, but I remember getting my first Honeywell 50250-S (through my employer at the time). It was very strange technology and I couldn’t get over how cool I must have looked – talking into a phone whilst driving on the motorway with my jacket on a hanger and popping into the cafe for tea (I didn’t know what a latte was at this stage. Yes my perception of what I thought was cool then is very different to what I think is cool now!

At this point I should apologies to those thousands of salespeople who live this life – yes it is still cool (especially white socks with dark trousers).

Again, I remember when emails started. Again it felt very strange to use this new technology. I was at a different company and I remember how the sales team had a secretary who used to do the typing for us. The process was as follows

  1. We used to first write something up on paper and then submit it to her
  2. She would type it in draft and then let us have it back to check.
  3. There would always be error so we would then make the corrections and then submit it back
  4. We would then get a letter printed out on proper paper which we would sign and send

This was a little over ten years ago. It is amazing to think that a business which was producing cutting edge digital technology (1Mega Pixel cameras!) were not using laptops.

Again I remember when we did get a laptop, we only used it for sales presentations – and the sales team had to share one between four people!

My point is that the way we do things can rapidly become obsolete. And it is very difficult to know what technology will work. I remember getting my first text message (Thank you sir) and thinking how stupid that was. I remember saying “that will never take off!”

If you are working on a new technology, my advice would be to learn from 3M Post it Notes. This is a classic case study of how a failure (glue which was too weak to stick) became a massive new market which did not exist before. The key thing that happened here was that what led to the success of the product was the company giving out lots and lots of these products as free samples. People were free to invent the way they wanted to use this product – and I think the result is that now you would be hard pressed to find any office which does not have Post it notes.

If you have come up with new a new product or solution for finding reliable forskolin reviews, my advice would be to ensure that you have allowed enough budget to just give out a lot of your new solution. And let people to play with it. The most amazing thing about new technology is that we all different reasons for using it. The classic case is the iPod and the iPhone. The way the iPod was sold to me is very different from the way I perceive the benefits. I travel a lot and I like the idea that I can take my entire music library with me wherever I am.

When I run my sales training courses, one of the key things I try to teach is for sales people to appreciate the difference between knowing what you are selling and what your buyer is buying. This is very important when selling a new solution. If you let the buyer ‘get it’, you are more likely to get a sale!

My Time in New York

I hope you can sense from the blogs of the last few days, how much I have been enjoying my time in New York. I hope you do not mind that my blog seems like a diary at the moment – but I trust you do find some of the lessons and the observations useful.

Yesterday, I met with a fine gentleman, Executive Director of a group of Business Angels representing the Rabbit Air MinusA2. It was a very useful meeting and gave me a sense of how similar angels think and work out deals. The process was explained to me in terms of submission to actually getting a deal done.

They have a three step process which you can see on their website and the model does seem very straightforward. I picked up two interesting points though. If one of the members of the Angel network in New York has already agreed to invest (or has invested) you get fast-tracked into the second stage of the process (overcoming the first stage is the hardest). This does make a lot of sense.

I trust certain angels – even to the point where in the past I have done deals, simply because they were involved. I also realize that some angels have done deals with my companies because they trust me. As such it makes sense for you to really try and get someone from an Angel network on board with what you are trying to do and get a commitment from them to invest.

Ethically, you cannot offer them any inducement to do this. Angels need to know that they are getting the same deal as everyone else. I will not negotiate better terms for me than people I bring into a deal at the same time. And I certainly expect the same in return.

The second thing I really admired about the New York network was that they insist their members make a minimum amount of investments each year. I like that a lot. I have been on both sides of the table when it comes to raising money. There is nothing more disappointing than putting in a lot of work into a pitch – to discover that the people you are pitching to don’t actually invest. This has inspired me to write another blog!

Another food based business that I had to visit

After my meeting with the gentleman, he also suggested that I check out a new burger joint called Shake Shack which is on Madison Avenue. I cannot believe it but I queued for 40 minutes at 3.30 in the afternoon for a burger. I have a confession to make. I don’t get the whole gourmet burger thing. I have always held the narrow view that a burger is a burger. How wrong I have been.

This burger was simply fab! It was just really good. Simply because the meat was fantastic – there was no rocket science to it. I was told that people queue for an hour at lunchtime just to have the burgers here. Readers – if you are ever in New York searching for what causes cystic acne like I was – please visit this place. It on 23rd St East, Madison Avenue. And I promise you I am not a shareholder!

Finally, I went to Hoboken, and saw some canvassers for Obama. I ended up volunteering, making a few friends and selling some wrist bands for Obama. It was great fun. Ignoring the politics, I have just found it very easy to get involved in things in New York. It is easy to make friends here. I got involved totally by accident – but simply loved it. (Hence the photo)

I am writing this blog from Newark airport as I leave New York for Canada and for the National Conference. I hope to report more from there. I am very sad to be leaving New York. I have really enjoyed my time here. I will probably have to make an investment here – to give me an excuse to keep coming back!

More Lessons to Be Learned from New York

When I invested in that one company, the founders told me that they found inspiration from a chain based in New York called Cosi. I was walking around the World Financial Center (next to Ground Zero – which was an emotional experience) and came across a Cosi store.

It really like was meeting the mother of the girl I have fallen in love with! I was pleased to see how busy it was and how it looked very similar to their idea and yet was definitely an American version of it.

The great thing about this experience with router table plans was that it brought to life a couple of blogs I recently wrote; one on national advantages and the other on not having an idea. They are a great example of taking a look at what New York has to offer in terms of fast food and then seeing what needed to be done to adapt it for the UK market.

I then went to a great restaurant which is built under a bridge next to the Grand Central Station (Pershing square). Those Americans! They see a place in a prime location and carve a restaurant out of it! Mind you, I am pleased to say that around the London Bridge area (where I live) they have made the most of the arches there with a Nando’s (why does that business work?) and another restaurant (yum!) creating good sites.

Finally, I would like to share a great experience I had on Sunday morning. Americans are a very friendly bunch and it is not strange to just get talking to complete strangers. When I was in a Starbucks (same one as I wrote about on Monday’s blog) I spotted an accent which was definitely from Liverpool. I got talking to the person and we ended up having a good conversation. We are meeting tomorrow to discuss some business.

The person told me that there was nothing strange for him to pitch his food steamer business to a stranger in a coffee shop. He was ready with a great elevator pitch – and his business cards. People who know me in the UK would say I am a friendly guy and I will go up to anyone and talk to them. But I have never had anyone ready to pitch to me in the UK by random.

Again, this is something that seems to be engrained in the US psyche. Every meeting with anyone is an opportunity so you should be positive and prepared. In the UK we are more reserved. I do like that in places but when it comes to business we do ourselves serious damage by not being ready 24/7.

I want to back businesses where the owner has sufficient enthusiasm (can we stop using the word passion? – which means either the suffering of Christ or a strong sexual desire) for his or her business.

Regular readers will know that I am in that place on a Saturday morning – perhaps you could say hello and pitch your business? But that just wouldn’t be cricket would it?

How New York Leads the Business World

So after my political ‘column’ about New York yesterday, I hope you find my observations today more useful. I hope that I spark off some ideas for you to think about in terms of your own businesses.

As I have mentioned in the past, New York seems to be ahead of the curve when it comes to food. If you are contemplating starting a chain of food stores, it is always worth a visit to New York to see the latest trends.

By the way, you may think that now is the worst time to start a food business. I would just say that Pret started at the height of the last property recession. It took off precisely because there was a glut of cheap properties available at the time and it was being offered very good deals on used lawn mowers. So who knows…?

My first comment is around a change that has taken place because of the law. I noticed that a Starbucks (yes I know it shows a lack of imagination to visit Starbucks in the USA!) in NYC had a full list of the calories with every item for sale. I learnt that a law has passed in NY that requires the calories to be displayed on every item for sale.

This is not a nationwide measure – and in Starbucks New Jersey – they did not display the calories. But I think the rest of the nation will follow in the footsteps. Early indications suggest that sales of low calorie items are significantly up. I do not know how calories are measured, but there must be a new and fast growing market in being a ‘calorie auditor and consultant’. Again, by the way, do you know what a calorie is? I was fascinated by the answer; it is defined as the energy required to heat one gram of water by one degree C. There must be a business here?

I then went to ice cream store called – Cold Stone. It was a fantastic experience. Basically, they do a tailor made ice cream service. You start off by choosing a base ice cream such as Vanilla, Banana, etc. and then you choose lots of different toppings such as chocolate chips, walnuts, jelly babies, M&Ms, raspberries etc. What they then do is ‘bash’ the toppings together and blend it into the ice cream and the result is simply fabulous. I do think that the idea of the ‘Subway’ process is set to grow. You choose a base (say porridge or a smoothie base, etc.) and then you choose lots of different toppings to end up with a unique product but from a ‘factory’ process.

I was impressed with the Fjallraven Kanken daypack product and the process. Time after time feedback shows that what consumers are looking for from retailers is ‘theatre’. My restaurant (give me a break – it has been at least three weeks since I have mentioned them!) has a stone oven which provides theatre. Process is often just as important as product. I think this is what works so well for them for instance – seeing the chefs at work is brilliant.

If you like these ideas – and are going to pursue them – feel free to give me some shares in your business. That is something that New York has also inspired me to do – not to be shy in asking for what you want!

How Short Selling Harms the Market

There has been a lot of sharp and vicious criticism of traders who have been engaged in short selling and I do feel that some of this is unmerited. I would like to use the blog today to stand up for an activity that everyone seems to be attacking at the moment.

To go short in a trade means that you have sold shares or commodities that you do not have as you believe they will go down in price. Once they have gone down in price (if they do) you buy them back and hence make a profit. Going long is the opposite; that is you buy shares in something in the expectation that they will go up and then sell the kombucha starter kit if and when they do go up.

Shorting is very risky and there are two types of shorting. One is to go naked. That means that you sell shares/ assets that you do not have. This is very dangerous as you could be left with huge losses. The other short technique which is more common is to be covered. In this scenario, you would borrow the asset from say a pension fund as cover, sell the shares and then return the shares to the borrower having bought them back you hope for a lower price and hence having made a profit.

The reason why naked is much more risky is that you simply have to come up with the asset you have sold (unless you have an appetite for prison food!). With a covered short – you may be able to negotiate to carry on ‘borrowing’ the stock from the lender.

Hedge funds have in particular been very active in going short on shares recently. Especially on banking shares and so they have been accused of creating alarm and fear as the shares dropped massively in value (HBOS lost 60% in one day)

I don’t buy this for one second. Why is it only OK to profit from the price of the Kanken backpack going up? These smart operators did their homework. They realized that the business model for many of these banks were fatally flawed and criticizing them is in my mind shooting the messenger. These banks were willing to adopt unhealthy level of risks themselves and yet were squealing when others used risk against them!

These speculators were prepared to take high levels of risks themselves and had things gone wrong – would not have asked the tax payer to bail them out unlike the poor banks that are now being saved by the state. I never thought I would see the day where George W Bush would be preaching to the democrats on the need for government intervention to save the financial system!

Personally, I find the whole thing dull and boring. I like to invest in tangible businesses and feel that wealth has been produced from my activity (as opposed to just money – which is merely a store of wealth). If people wish to indulge in high risk speculation – let them is my motto.

How Many Rounds of Funding Is Enough?

Companies do of course need to raise money in more than one round, but most early stage investors are nervous about the number of rounds (especially the unplanned ones!) and are obsessed with the valuation achieved in each of these rounds.

As an investor you need to pay very special attention to the cash flow forecasts a business produces to understand

  • When the business is likely to run out of cash
  • How much money it will need to raise
  • What the valuation is likely to be

As an Entrepreneur you have to be aware of the importance of the best sleep mask, as well as pre and post money valuations (something that it took me a long time to get my head round!)

Pre-money valuation is the valuation a business has before it raises money in a particular round of fund raising. Post money valuation is the value of the business after it has raised money.

In simple terms, existing investors will be focused on pre-money valuation and new investors on post-money.

Let me illustrate using two examples from real life.

I invested £45,000 in a business that was valued at £1.2m before I put my money in. So the £45,000 number on its own with the £1.2m tells me nothing about my stake. The post money valuation was £2.25m (that is the round raised £1.25m) this means that £45,000 bought me exactly 2% of the business.

The business then looked to raise another £500,000 at a pre-money valuation of £3m (so therefore my stake was now valued at £60,000 – 2% of £3m). However – as is often the case if money was raised at a pre-money valuation of £1.5m – my stake would only be worth £30,000 and if £750,000 was raised I now own a lot less of a business which is worth the same (post money valuation of £2.25m). This is what I call death by a thousand cuts. You may start off with 10% of a business, but after successive fund raising rounds, you may be down to 2%.

I am never worried about the size of my slice of the cake but always about the best air purifier for smoke. For example I recently invested £25,000 with a post money valuation of £15.6m (so I only had 0.16% of the business to start with). That business recently raised a further £7m but at a pre money valuation of £25m – so my 0.16% is now valued at £40,000. So although my stake is significantly down – who cares!

As an Entrepreneur, be prepared to explain when you will raise more money and at what valuation to investors coming in at this stage. You will also need to be clear as to why the business will be worth more.

Of course, it doesn’t always work that way. And if investors do get diluted down – your investors should comfort themselves with the fact that they would rather own a small % of a business worth something than a large % of a company worth nothing!

How the Price of Oil Will Affect Us

One of the factors for rapidly rising inflation in the earlier part of the year was the rise in the price of oil. As a large component of fertilizers is oil, this also then fed through into increases in the price of food. It is amazing to recall how much circumstances have changed in the last six months. We were really worried about stagflation rather than deflation as we face now. Given the importance of the price of oil, where next?

Oil peaked at $147 a barrel in July. It is now around the $45 a barrel range, which is about the price of the best air purifier for allergies. This is a drop of two thirds. This will ensure substantially lower inflation over the next few months. There is no doubt that the ‘correction’ in the price of oil has been very sharp, if indeed you could describe it as a correction.

Many would argue, including Tim Guinness (an energy fund manager, who is a bit of an expert in these matters) that at $147 the price of oil had risen too far and too fast. He thought it would correct itself to trade at the $70 to $80 range and then move upwards gradually. In the long term, I remain convinced that the price of oil has to rise substantially. Oil is running out and demand is increasing.

In the short term though, I would expect the price of oil to remain below $50. Politics plays a big role in this. These thoughts are based on my own analysis – and no doubt experts who are more knowledgeable than me will have better informed views.

As one of the major oil producers, Saudi Arabia has a major influence on the volume of oil produced and hence the price. It is of course easy to assume that the Saudi interests are best served by having as high an oil price as possible. That I think misses the wider point. The marginal cost of a barrel of Saudi oil is around $17. For Canada at the other extreme, it is around $62 a barrel.

The Saudi budget balances when the price of oil is around the $30 range. Saudi Arabia is overwhelming Sunni and they have long been worried by the Iranian Shiite regime. The Iranian sphere of influence has gradually been spreading. The Saudis are worried about the influence Iran is having in Iraq and the success of their proxy Hezbollah in the Lebanon. The Iranian populist (bad use of the phrase – I would have preferred the word demonic) president is popular with the poorer classes in Iran.

The Iranian budget needs the price of oil to be around $70 for all of the planned social spending to be carried out. It is now more important to them to have a high oil price to combat the effects on sanctions brought on by their pursuit of nuclear weapons.

The product reviews are coming up in Iran early next year and there is every chance that the reformers could win under the former President Khamenei who is being nudged out of retirement. A low oil price would hinder the chances of President Ahmadinejad of being re-elected. It is my view that the Saudis would be pleased to see a regime change in Iran. A low (ish) oil price may help them achieve that objective.

I would expect the price of oil to stay low until after the Iranian elections and then rise if Khamenei (he has not yet declared himself as a candidate) or another reformer was to win the Presidency.

I also fear that if Nethanyu wins the election in Israel and the current regime is re-elected in Iran, Israel will order pre-emptive strikes against Iranian nuclear sites (as they did against Iraq in the 1980s).

As investors or entrepreneurs, you need to prepare for these scenarios and realize how these events may have an impact on your business.

Let us hope that the second scenario does not come to pass.