Tag Archives: entrepreneur

Getting Paid Twice

Goran RoosHow do you make $2 profit from every $1 sale? That was the guts of a fabulous speech by Goran Roos last night at the Churchill Club. Its hard to put Goran in a box, but he is a management consultant, entrepreneur, Professor, Chair of the Finnish version of the CSIRO and currently on loan to the South Australian Government as a thinker in residence.

Some great examples he raised around becoming more profitable were:

Mills & Boon – Who in the 60’s ended up making $1.25 profit for every dollar of revenue they made selling books. The key to this was selling (80,000 copies of) a writers manual to potential authors. This level of profitability ended once Mills & Boon changed hands.

Costco – Who use their membership fees to cover their fixed costs. They then make their real profit not on the low-margin goods they sell, but in their banking as they receive immediate payment from customers, but pay suppliers at around 270 days. Effectively they are a bank!

Pearson Publishing – Every article gets written both as a summary and an in-depth piece. The journalists become subject matter experts and write books, give speeches and provide training. So the one piece of creativity ends up having 5 or 6 different revenue streams attached to it. Interesting to compare them to the L.A. times that reacted to reduced revenues (due to the internet) by cutting editorial staff, which led to a quality reduction and eventually a death spiral.

Ryanair – Although you can technically fly for free with Ryanair if you purchase your tickets early enough and obey all their rules, Ryanair has generally become the most profitable airline in Europe. They will charge you penalties if you book late, haven’t printed out your boarding pass, want to check luggage, want to make a change, or want food and drinks on board. They charge airports to deliver passengers/customers and have advertising everywhere. Their costs are cut to the bone using second hand equipment, using staff from countries with high unemployment rates and even making staff bring their own pens if they feel they need to use one.

So increasing profits is not so much about cost cutting, which normally ends up severely damaging, if not killing, a business after a short-lived improvement in profitability, but doing two things.

1. Asking for an unreasonable outcome, such as $2 profit from every $1 sale. This sets creative juices flowing and makes your team think outside the box.

2. Looking to access new profit pools, rather than try to increase your share of existing ones. This means that you can have your profits exceed the values of your core sales.

So it appears that the key to increasing your profits is really understanding who your customers are, who all your potential customers are, and how to turn your suppliers into customers. I loved hearing that not only did Ryanir do great deals with their food suppliers, they also charged their suppliers a fee for exclusivity.

NDAs and 5 tips for getting them signed

When I was a pimply faced lad and just received my commission to be an Army Officer, I had my new boss, a senior Armoured Corps Officer held up to me as the example I should emulate. It wasn’t because he was a particularly great leader or a great soldier though, it was because he thought through all possible outcomes and developed strategies to cope with them.

NDAs non-Disclosure AgreementsA really good example of his style was at a training course that he went on. All attendees at the course were set a task of developing a battle plan that could either have an Infantry bias or an Armoured Corps bias. The twist in the tail was that the assessors were an old Infantry officer and an old Armoured Corps officer, but you didn’t know who you were going to get. So:

  • Some people on the course wrote a battle plan that was a compromise between the Armoured solution and the Infantry solution. They hedged their bets.
  • Some people on the course wrote a battle plan that was clearly biased to Infantry, and some to the Armoured Corps. They hoped they would get the “right” assessor.
  • My guy however wrote two complete battle plans, one for each bias. He then held them both behind his back and handed over the plan with the correct bias, when he found out who his assessor was to be.

I was reminded of this the other day when I was having a drink/discussion about the use of NDAs or Non-Disclosure Agreements with a lawyer and a merchant banker. During the course of the conversation, a number of interesting points came out around their experiences, which I thought I might share.

1. How long should NDAs last for?

In Australia we tend to say “until the information is in the public domain”, however in the USA it tends to be for a time period “3-6-12 months?”. So consider how long the information needs to remain secret for, as it becomes much easier to get it signed if its only for a short period (especially if the other party is a potential investor and may be looking at many technologies in the same area).

2. Are their layers of Information the NDAs cover?

Information can be presented in layers, and NDAs uncover the layers. So you have an abstract overview that perhaps anyone can look at. An NDA that allows deeper access, and another NDA that allows secrets to be reviewed, but needs a “lets get serious” non refundable deposit to be executed.

3. How do NDAs fit with other documentation?

A presentation that has parts blanked out is sure to whet the appetite. A handy NDA can allow your audience to then see the version of the power point without the blanked out bits.

4. How many NDAs should you have?

There is more that one type of investor, generally strategic (smart money) or cash only (dumb money), and these people will need different information before they get on board. Perhaps you are even talking to a potential investor that has investments in competitors? You need to understand, the attributes of what you have to hide plus the needs of the audience. Thinking like this means that you will end up with more than one NDA.

5. Understand each and every clause of your NDAs

In every negotiation you are likely to compromise or give things away so that you can ink the deal. The NDA is no different, perhaps to get it signed, you need to drop some clauses. You need to understand what you are prepared to run a line though before you sit at the table.

The Army Officer that was held up to me as the guy I should emulate, wasted an awful lot of time worrying about things that never came off. The upside of this was that everything he ever did was successful.

So do you just use one standard NDA that your legal guy wrote?

3 keys to no bullshit plans

Pretty much on a  weekly basis I get sent ideas,  business plans and/or Information Memorandums for capital raising.  Everyone who sends me one, tends to think its an expertly crafted, zero risk proposal to achieve a massive return with a world changing idea. I don’t. So when a couple of weeks ago, Justin Brow asked me to speak to the mobile venture groups at MEGA, I decided to have a chat about the assertions that people make in their plans, and what I think of them.  When I go through someone’s documentation, I classify each statement into one of the three types of type of assertion it is. Facts & Inferences First up, can your assertion be checked and confirmed?    If not, its not a fact.  And even if it it is a fact, you’ve got to ask yourself;  is it specific, is it unemotional, is it logical and finally, is it relevant?  All too often a pretty graph or data can be sourced, but unfortunately just not be relevant.  I put the same test on any inferences made, plus they also need to be reasonable.  Anyone can create dumb inferences, for instance Bobby Henderson, famously & amusingly, inferred  in an open letter to the to Kansas School Board that Global Warming was in fact caused by the reduced number of pirates in the world since the 1800s. Assumptions Assumptions are always made in plans for new ventures, because that’s where the opportunity lies – in the unknowns.  Assumptions should always be clearly highlighted and then matched up to milestones that validate them.  Is there actually a market for the idea, or as Rob Ryan says – “will the dogs eat the dogfood?”  But just because there are highlighted assumptions in a plan, doesn’t mean they are reasonable.  Questions I may ask myself about assumptions include;  are they explicit or implicit, are they reasonable, and finally – how much effort and resources is required to turn these assumptions into facts?  I regularly find that assumptions can be validated with a quick Google search, and unsurprisingly,  lazy promoters of ideas don’t get investment (or a second chance). Weasel Words The final type of assertion I find in plans, and unfortunately the most common, are weasel words.  Weasel words are typically vague assumptions masquerading as facts.  Its like the egg that has been sucked empty by the weasel and still looks okay, despite the fact it being empty.  All to often I see examples like these:

  • “People say…” (Which people? How do they know?)
  • “Nobody else’s product is better than ours.” (What is the evidence of this?)
  • “Studies show…” (what studies?)
  • “The vast majority…” (All, almost all, more than half – how many?)

So when I’ve finished the first pass of the documentation – its covered with my pen notations.  A whole lot of Fs , As and Ws.  If the W count is too high I pretty much throw the proposal in the bin without responding. W also stands for “waste of time” !

What happens after failure….

This is a video of a speech I did in June this year on corporate failure at AIMIA.  Rather than talk about climbing back up, or just hanging on the cliff, I decided to talk about what happens when you actually fall off and your business fails. It was probably a bit too candid.  Its not about the legals or the accounting side.  It about that thing that never gets talked about.  What do you, the entrepreneur, do before, during and after.

Style vs Substance

I was having coffee with a colleague of mine Steve this week. Steve works in international sales for a highly successful Australian air monitoring business called Ecotech. Over coffee we were drawing a parallel between pain and knowledge. Basically pain doesn’t seem to hurt as much when you get older because you have a much larger “backdrop” of pain to measure it against. “Sure the cut hurts, but no where near as bad as the time I cut open the roof of my mouth, or broke my ankle”. Which makes kids tend to think you are superman  with a really high tolerance for pain.

In regards to knowledge, we both felt that there was plenty of stuff we knew and simply took for granted. Interesting and useful bits and pieces picked up over 20 years, don’t tend to stand out as a dramatic insight, especially when you have hundreds or thousands of the things stuffed away in your head. So it always comes as a surprise when you are asked to explain something that appears to obvious to you, but not to a graduate or someone at the start of their career. The type of person whom can explain the weighted average cost of capital – but gasps at an insight like managing your cashflow actually matters.

So this was the context I was thinking in when I got an email today from a Churchill Club member who asked me whether I thought clothing was important, even though it had nothing to do with a person’s substance behind the scene.   The position was kind of “are these things related?”

My answer was of course they are – but nothing as simple as the old saying “dress for success”. People who say that are almost certainly fools you should run away from, and never do business with.

I tend to think of the matter as a two axis graph. On the y axis (the up and down one) you have style, and on the x axis (the left to right one) you have substance. Style I tend to think of as how you present yourself, substance is your ability. Jon-Michail, whom spoke recently at the Churchill Club on the topic of personal brand says that style includes your clothes, language, habits and environment. Style is not just wearing a nice suit – its wearing a beautiful suit if you are in business, cutting edge clothes if you are in fashion and outrageous clothes if you are creative. Its creating the style to immediately portray what you are and how good you are at it.   As a contrast – Substance is not just your technical capability, but your depth of experience and authenticity.

Style V's Substance

When you put them together, you get a graph that suggests to me 4 types of people.

No Style & No Substance = Larry Loser

If you have no skills or capability and you don’t present your self in the best light – opportunities will never ever come your way and what you have will be eroded. If this is you do something now – don’t bug me about it though.

Style but no Substance = Fast Eddy

I see this person all the time. They tend to move up through the world very quickly, impressing the people ahead of them and making those left behind bitter and angry as they never actually achieve anything at all. They’re very big on weasel words, and in my experience – always come a cropper (the universe is brutally fair after all).

Substance but no Style = The not-so Quiet Achiever

This person endlessly whines about other people taking credit for their work and they never seem to get a break. They feel that their abilities are all important and only shallow people wouldn’t recognise this. Despite life long evidence to the contrary.  These people make good workers, not leaders.

Bags of Styles & Substance = Winner

Sometimes you meet someone and from that first moment they appear to be really good at what they do, and then surprise surprise they actually do what they say the y were going to. You can’t help but become a true fan and rave about these people. These “Winners” with both style and substance endlessly have first class opportunities offered up them and are forgiven for any mistakes they might make. One can only aspire…………

So here’s the guts of it. If your a technician and want to be known as a technician – dress like one (I have immediate confidence in the guy wearing blue kingees rather than blue jeans). But if you are a technician whom is trying to cross over to run your own business – start wearing a suit (a good one not a crappy), learn the language and act with confidence.   I reckon that all this is obvious but decided it was worthwhile mentioning, just in case it wasn’t obvious to everyone.

Geographically Embarrassed Businesses

Geographically Embarrassed. Its a euphemism for being lost. Whenever you go wandering about in the bush on an Army exercise, individuals or groups are sure to get lost. In my my experience, the first assumption made when you realise you are lost is that the map was wrong. Unfortunately it almost never is.

The army of course knows people will get lost, so it gives them tools to figure out where they are. And no I’m not talking about GPS. The problem with GPS is that they need batteries, can break and don’t always work properly.

One of the first things young soldiers learn about navigating (apart from reading a map and using a compass) is how to conduct a resection. Effectively what you do is:
1. Look around for 3 major features (eg hills).
2. Find them on your map.
3. Use your compass to get a bearing to each of the features.
4. Draw that bearing on your map, making the line go through the feature.
5. You should have 3 lines on your map that (depending on your accuracy) create a small triangle.
6. Unless you have buggered things up, you are in the centre of the triangle.

“But” I here you say, “So What?”. Well navigating from point A. to Point B. in the bush is not that dissimilar from getting your business from point A. to point B. You start off with a well thought through plan, that normally begins to fall apart as soon as you move. The terrain isn’t how you expected it to be, holes in you plan become gaping chasm’s, people in your team have their own agendas and if you end up running into a little bit of competition, all bets are off.

So one of the things that I regularly see in both businesses that I am an investor in, and my clients –  is a business plan that regularly mutates to suit the current situation . This always seem rational at that moment in time and is described as a benefit “We are dynamic and not a moribund corporate, we are constantly changing to market conditions”. Unfortunately, like the dodgy map, its not just not true .

Its very hard in startups and SOHO firms to have strong management and governance but I suggest that in monthly management meetings, a resection is conducted. Take 3 of your KPI’s for the year, metaphorically draw a line back to where you are and figure out whether you are still on track. Which KPIs should you pick? Material ones of course – large &  drivers of your business,  the ones that matter. This is normally around Customer acquisition, Revenue and Cashflow management.

If your not where you expected to be, don’t change your plan, change your actions to get yourself back on track. Your map is almost never wrong.