Category Archives: World Markets


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!

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!

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!

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!

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!

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.