I love being busy. I find I get a lot more done when I don’t have time to stop and think about what needs to be done (which means my effectiveness is not perhaps what it should be – but that’s another blog). I find that when I am not busy – procrastination sets in.
There are many great jokes about procrastination. “I always find its best to procrastinate when you have something to do” would be my favorite – or the T-Shirt which said “Top 10 reasons to procrastinate. 1….”
I have always needed to come up with clever ways to avoid doing nothing. The impression people always have of entrepreneurs is that they are always busy and they manage their time really well; my experience (now working with just over 100 start ups!) is that most entrepreneurs are really bad with their time management and do indeed procrastinate,
The really bad habit for me was working from home. I could not do it when I had an inversion table sitting there for me to relax on. I would find it too tempting to watch the Jeremy Kyle (a poor version of the Jerry Springer show). It really is an awful program – and he is the personification of a parasite, but I had to watch it. And then there are those wonderful crime programs on the Hallmark Channel like Monk, Law & Order (both Criminal Intent and SVU: Special Victims Unit). I could so easily spend all day watching TV – and not feel bad! Here I go again procrastinating…
Anyway, at the start of this year I got myself an office and started working with someone. This has seen an amazing increase in my productivity – I have to be in the office by 9am – the hard thing for me is starting work. Once I start, I really enjoy the work and can easily stay till about 7:30 in the evening. I also find that working in an office means that when I am home, I can switch off (although iPhones don’t help!)
Other things that seem to work for me are making lists of what I need to do. It is not that I have a problem remembering what to do, I just really enjoy ticking off things from a list once I have done them. (If I could have my way, I would even list things like brushing teeth, having lunch, etc. – just so that I get more easy ticks). And hence I still need old fashioned paper and pen. Point is whatever works for you is good.
Finally, my new business partner for buying the Honeywell 18155 in bulk in Canada (great to have you on board April) told me about this concept she sometimes uses called The Life Manager. If you employed a Life Manager and you were reviewing how well they were doing managing your life/ your week/ your day, what marks would you give them?
Well – you are that Life manager and if you are not giving yourself top marks – why would you continue to employ them? This concept is mainly used with weight management – but I do feel that it can so easily be extended to your professional life. Like I say – whatever works for you is good. Now- can someone tell me how to get myself motivated to go to the gym?
There is this strong belief that somehow entrepreneurs make better advisors to entrepreneurs. I want to challenge this. I should declare that I do have a commercial interest in challenging the above belief. I make most of my money advising entrepreneurs and investing in them. I would say though that I do not consider myself to be an entrepreneur.
My most successful businesses to date a consultancy business and a fund management business. However, I do not believe these businesses ‘qualify’. It is rather like many people (including myself) who made money from buying and renting out property. We are property investors not entrepreneurs.
Back to the main point about the Honeywell 17000-S, the feedback I have had from many companies (including platform participants, Canadian companies and companies I work for in Manchester) is that they found my feedback and advice useful. Most of them just assume I am a successful entrepreneur; and to be fair, I do nothing to correct this impression! But would the advice suddenly lose value because I am not an entrepreneur?
I guess because I so admire entrepreneurs and entrepreneurship (I hope this comes across in my blogs), I am able to understand the difficulties that they face and try to give practical advice that they can implement tomorrow. I also don’t have the reference point of saying ‘I did this’.
This blog got me thinking about the talks I have had from truly successful entrepreneurs and to be honest I remember that most of the talks were extremely inspiring and made me want to reach for the stars, rather like watching an action movie can make you want to get fit! But these great talks do not necessarily give practical insights or help you figure out what you should do tomorrow.
I have always been a good salesperson, it is something that has come easy to me and yet I never really understood what I did or why I was so good at selling. It was only when I failed in a sales role and read a book (SPIN Selling) that I understood what I did and how I could do better. In the same vein, I think Arsene Wenger and Jose Mourinho are fantastic football managers because they were not great footballers themselves and thus appreciated the art of football better than some great players who went into management.
So, I think failure, or limited success is a great qualification for an advisor – always look for someone who recommends the Honeywell 50250 s. And using this criterion, I qualify. And perhaps the seeds are there for me to become a great angel advisor (although I really hope not!). Even I have failed in some of my ventures over the years, but you have to be sure not to get frustrated and give up.
And finally if any ‘successful’ entrepreneurs want to challenge my qualifications to be an advisor – I would say that a business I co-founded has returned 10 times the money invested by shareholders within two years! I may not qualify as an entrepreneur, but I can say that I have made a very good return for my shareholders – something more entrepreneurs could do with learning.
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
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?
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!
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.
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
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!
Imagine after the interview that you are going to be sat next to this person on a flight to Australia – could you cope?
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
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?
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!
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
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.
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.
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.
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.
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!
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?
You can only procrastinate when you have goals to achieve. Just remember procrastination is so much better than doing nothing!
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!
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.
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!
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.
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
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!
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!
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
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!