Category Archives: Business

An ad free blog!

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Picture 4

Adrian J Cartwood Esq. [AJC: Euphamism for ‘Nobody Important’]

I use a tool called ad-blocker to do exactly what the name suggests: block ads from appearing in my browser. There’s no real reason for this, other than I wanted to see how it works …

… but, it’s (hopefully) well known  by now that I don’t accept advertising, promotions, or cross-links for any products or services on this blog.

I do, of course, mention books, products and services from time to time … but, only those that I genuinely use and like, and I NEVER accept payment or join affiliate programs.

The reason is simple and two-fold:

1. A multi-millionaire can hardly be credible if he writes to earn a few extra bucks per week from advertising revenue,

[AJC: Although, this reminds me of a joke that was a huge hit at Blogger Con 2007: A blogger gets on The Apprentice, and says to The Don “You know, Mr Trump, if I were you I would be richer than you”. To which Trump raised an eyebrow and responded “How so?”. The blogger, with a totally deadpan face, said: “Well, Sir … if I were you, I would still do a little blogging on the side!”. Oh, those blogger’s conventions are such a riot! 🙁 ]

2. Even if I donated that extra few bucks to charity (I give plenty, already) YOU wouldn’t know or believe me, even if I said that’s what I was doing.

So, no solid good reasons, just the way I feel … and, others are entitled to feel totally differently … which is why I present the little owl-logo, above, just in this post, and  probably won’t promote their site by placing it in my sidebar 😉

However, what I would like to see is a ‘community service’ advertising program, where a trusted third-party places ads on your site, collects the revenue (or, maybe the spots are free community service announcements), which goes directly to a panel of trusted and worthwhile charities and/or non-profit organizations.

Anybody up to the challenge? Give me an exec. summary of your business plan!

Work on your business?

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Picture 1Yesterday, I told you (yet again) about this book … the book that others claim to be “the most important business book” that they’ve ever read.

Well, I claim it to be so, too!

Let me revisit one of the key tenets of this book – indeed, a phrase that has been often (mis)used by all and sundry:

Work on your business, not in your business!

Why misused?

Because I think that most people use it, but don’t really understand what it means to really work on your business, rather than in it …

… to understand what this truly means, let me give you a personal example:

When I started my second business (the first having being ‘handed to me’ in a rather crumpled heap … but, that’s another story), I was not at all qualified to do the ‘work’ of the business, which was essentially technical in nature, yet I taught myself to handle the paralegal files that we were handling at that time because my attorney was too slow.

This became a blessing – because, it meant that I could reduce costs by insourcing a lot of the previously outsourced paralegal work which was the essential component of the business model – and a curse, because I was the person handling all files, initially.

Even when I started to hire staff, all ‘complicated’ files – or, all files over a certain $$$ value – would cross my desk, because I wanted to make sure they were “done right” … you see, I had started the business, so I wanted to believe that I was also the best technician.

But, of course, that wasn’t my job …. but, at the the time, I was blinded to the fact that every hour that I spent handling technical issues was an hour that I was NOT running my business!

Eventually, as happens in so many businesses (thank goodness!) my operations manager simply stopped his people referring those files – any files – to me; he didn’t ask, he just stopped sending them to me.

Guess what?

Our technical metrics didn’t fall in a heap … the uber-technician [AJC: obviously, only in my mind!] was not as essential as he thought he was …  and, I had more time to concentrate on my real job: CEO i.e. running the business.

The business grew!

Lesson One learned: I wasn’t essential to the technical operation of the business.

But, as CEO – now, totally focused on marketing, finance, and other high-falutin’ business matters – surely, I was key to the successful day-to-day operations of the business?

Seems logical, until I signed the contract for the USA branch of the business …

… since this would be about three times the size of the Australian operation, I decided that I needed to relocate to the USA to personally manage my ‘global operations’ (well, three countries: Australia, New Zealand, and now the USA) from there.

That left me a hole to fill: I needed to appoint a replacement CEO of my Australian operations.

After a long search, I found somebody, who I appointed and trained over a period of months …. and who promptly resigned for a “better opportunity” [read: more money] just 6 weeks before I was now contractually-bound to relocate to the USA to commence operations!

Think about it: I now had only 6 weeks to find and train a CEO who could replace me in a job where I – like every owner/CEO – believed that I was totally indispensable!

How would this be possible [AJC: queue to apocalyptic visions of imminent business failure]?!

Yet, somehow, I found the ‘new guy’ and gave him all of two weeks training before I left, leaving him with:

– some last minute instructions (which he subsequently, all but ignored),

– my direct phone line in the USA (which he NEVER used), and

– my silent prayers that he wouldn’t run my life’s work into the ground too quickly.

Here is where I learned my ‘second lesson of indispensabilty’: not only did he NOT run the business into the ground, he saved a client that I had all but lost, maintained excellent relationships with my largest existing clients, signed a major strategic new contract, etc., etc. …. he proceeded to double the business over the next couple of years.

In fact, to this day, he is still successfully running the Australian operations for the new owners!

Lesson Two learned: a good business runs well under the watchful eye of it’s owner/CEO … a GREAT business runs even better without him.

You see, anybody [AJC: clearly!] with suitable training and experience can do the technical and managerial work of pretty much any business …

[AJC: if not, you don’t have a business …. you have a JOB]

… it just needs good systems to be put in place so that the business can run on ‘auto pilot’ while you – as the entrepreneur behind the business – do the ONLY job that you NEED to do:

Develop and and promote the strategic vision of the business.

Any other work that you do decide to take on is just so that you can feel busy … if that’s what makes you happy, keep doing it.

Me?

I prefer to make money 😉

The BEST way to make money …

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Recently, I’ve been talking about how to make money in property development, but that’s not the only way to make money … it’s not even the BEST way to make money.

So, what IS the best way to make money?

For that, we need to refer back to Michael Masterson’s table from his book, 7 years to 7 figures [AJC: That’s nowhere near $7 million in 7 years, but it’ll have to do 😉 ]:

Required Compound              Investments

Growth Rate                             Required

4%                                                  CD’s

8%                                           Index Funds

15%                                              Stocks

30%                            Real-Estate together with Stocks

45%              Real-Estate together with Stocks and Small Businesses

50%+                           Start Your Own Business

… from this, it’s clear that starting your business is the way to go IF it’s the Big Bucks that you are after.

But, you don’t have to start off big to end up making it big: I had no idea that I was going to end up with $7 million in 7 years when I started my business (in fact, it was only until a few years AFTER I started the business that I found my Life’s Purpose, hence my Number) … just take it from Pierre Omidyar, the billionaire-founder of eBay:

I started eBay as an experiment, as a side hobby basically, while I had my day job

– It’s what my son is doing with his eBay business (and, now with his New Online Venture … which I’ll share, once he gets it off the ground)

– It’s what my Web 2.0 partners did with our first venture (they’ve since left their full-time jobs to start their own software consulting/development company)

And, it’s what YOU should do, if you want to start a business with the least amount of risk!

Is a fan?

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Mike  – the one who actually seems to like my blog – makes a good point in response to the other Mike, who doesn’t:

I’ve never taken out a loan from a bank for my personal finances. Bought every car 100% cash, and bought my first home (condo) 100% cash back in 2005…

On the businesses I’ve run there have been bank loans but I like to get things to where cash flow is coming in and no need to take out a loan.

Unless your business is very capital intensive I’d argue that investment money should come from cash flow and not bank loans. Granted, if you want to expand quickly you need access to capital but who faces this in today’s market?

Now, I’ve been recently told that the true meaning of the word ‘ambivalence’ isn’t a lack of care, but that you care equally strongly about two or more choices; therefore, I can claim that I am ambivalent about bank debt … let me explain by sharing my response to Mike:

1. I have a finance company that uses 90% borrowed money (it has to!),

2. I happily borrow 65%+ for my commercial property purchases,

3. I have zero debt on my houses ($6m+ between them).

So, I can make an argument for anywhere between 0% and 100% leverage (e.g. bank funding) :P

… and, I forgot to mention to Mike that my residential properties are funded 75%+.

Why don’t I pay down the properties now that I have the cash?

Well, if I was truly in Making Money 301 (wealth preservation) I probably would or should, but I have thrown myself back in to Making Money 201 (wealth creation) by making the property development site purchases that I mentioned in this post, last week. If I didn’t preserve my cash (i.e. by NOT paying down debt), then there’s little chance that I could complete these developments.

How to fund your business expansion …

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Profit-And-LossTake Mike’s point about raising business capital, from this recent post:

Investment money [for your business] should come from cash flow and not bank loans

I happen to agree, mainly because business funding is hard to come by and can be very expensive …

… when, the BEST place to find the capital to run and grow your business is from the gap between:

a. Your Sales, and

b. Your Costs.

This is nominally called PROFIT, but that is dangerous because it implies that you can spend it.

Remember my friend’s friend who had a business making $3 million a year? Well:

1. He gave Uncle Sam one third, and

2. He saved one third, and

3. He spent one third.

Which sounded totally logical until I realized that his ‘cost of living’ was $1 million per year and the Rule of 20 says that he would need at least $20 million in passive investments to justify anywhere near that sort of spending level!

But, a business generating $3 million in earnings a year – as we now know – is usually worth 3 to 5 times it’s annual earnings AFTER TAX, which means his business is ‘only’ worth $6 million to $10 million … a huge amount, but nowhere near enough to justify blowing $1 million a year.

Then there’s still those savings, which (at 10% return) would generate the ‘missing’ $10 million to $14 million (i.e. to reach his $20 mill. Number) in, say, 8 to 10 years (of course, by then he needs $30 million because of inflation, which would delay things by another couple of years or so).

So, what to do with those profits?

1. Pay Uncle Sam one third, and

2. Save one third, and

3. Double the remaining third; multiply it by 3 to 5; then, divide the answer by 20 … and spend that [AJC: enjoy!], and

4. Add the remainder to 2.

Now, what to do with 4. (i.e. the savings generated by 3. plus 2.)?

Well, I would use it to:

a. expand the business, and

b. invest outside of the business

… probably in roughly equal measure – with any excess amounts (i.e. that the business doesn’t need in the foreseeable future) also moved into ‘passive investments’ outside of the business.

If you do this, Mike, you will:

i) Live reasonably safely and well, and

ii) Build your Perpetual Money Machine, and

ii) Probably won’t need the bank to fund your (international?) expansion

… at least, that’s how it all worked out for me 🙂

The Instant IPO

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Money AngelRecently, I pointed all of the difficulties of the Entrepreneur’s Holy Grail – the IPO [cue angels] …

… for all these reasons – and more – I didn’t IPO my businesses … but, I found something almost as good:

7million7years Patented Instant IPO

It works like this:

Step 1

Make sure that your company is profitable and has a reasonable track record of growing profits. This should value your company at 3 to 5 times earnings (i.e. annual net profit after tax)

Step 2

Find a Public Company in a related industry that is trading at least 12+ times its earnings after tax – the more the better, for you!

Step 3

Sell your company to that company and negotiate a mutually agreeable split of the difference between your ‘private value’ and their ‘public value’!

Basically, what you are doing is using the public company’s stock to “IPO” your own company:

You see, when you are on the outside, your company is worth only 3 to 5 times its profit to a buyer, but as soon as the other company buys you and ‘absorbs’ your profit into their profit stream, that profit is suddenly (well, after a relatively short ‘disruption’ period where the market has to get used to the sudden change in profitability of the public company) ‘worth’ 12+ times itself.

[Hint: The smaller you are relative to the size of the acquiring company the smaller the disruption … on the other hand, the smaller you are, the less attractive your cashflow may be to them, so it helps if you also have some ‘secret sauce’ – i.e. Intellectual Property – to make you look that much more attractive to the ‘big end of town’]

The company that has acquired you has just made a huge windfall by using the difference between how private companies are valued and how they – the public company – are valued to their advantage … in fact, there are plenty of public companies that do this as a matter of course. Sometimes, it even need only be only an ideal coincidence that your company actually adds any other business synergy to theirs!

But, when you sell to them, you will find – if you are a smart negotiator – that they have gone to all the expense and trouble of the IPO process for you 🙂

Let’s look at an example: say that your company produces $1,000,000 net profit each year, and you have found a likely candidate public company. You have evaluated the market and believe that your business would sell for $4 million in the private sale market.

But, you realize that your widgets complement those of Acme Widgets Inc. very nicely. Acme’s stock is currently trading at a P/E of 12.

You approach the CEO of Acme Widgets Inc. [AJC: actually, if you’re VERY smart, you’ll engineer it so that he approaches YOU 😉 ], but play reasonably ‘hard to get’.

The CEO realizes that:

a) Your widgets do indeed fill a hole in his product range that will cost his capital (and, short term profits) to fill in house, and

b) Your $1 mill. profit adds $12 Mill. to his company’s value (i.e. his stock price will eventually go up by about $12 mill. when the value of all the stock out there is totaled), and

c) He happens to hold a nice bundle of stock and options set to vest in 18 months or so.

So, what is worth $4 million to you, is worth $12 million to him … how much would you sell for?

Ali G hits Donald Trump for some money …

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http://www.youtube.com/watch?v=8SaHW6Y7_Yg

I usually do my videos on Sundays, but this one – by the ‘genius’ (?) behind Borat and Bruno – actually has an important message for aspiring entrepreneurs … and, it’s this:

When doing your business plans, it’s tempting to find some stats online that say something like:

… the market for widgets in the USA is $10,000,000,000 per year …

… which leads you [AJC: especially, if you are Ali G] to make ‘conservative’ claims like:

… and, if me capture just 1% of that market, with our New Improved Widgets, we’ll make at least $100,0000,000 per year, so you should invest with us …

Wrong!

You see, you haven’t answered the key question that the Venture Capitalist is sure to ask:

How will you capture 1% of the market?

What will your sales strategy be? How will your marketing/sales team capture 1% of the market? And, why won’t they capture 1.25% or 0.75% of the market (with such a variance being worth a paltry $25 million either way)?

Rather, what I (and, I assure you, the other VC’s out there) want to hear is how you will attack the market? What resources and expertise will you supply? Why will they be more successful than the competition?

And, if you have (say) 5 sales reps, making (say) 10 calls per day, what is reasonable to expect them to be able to close and how much revenue does that mean?

I dare say, if you take this bottom-up approach, you won’t come anywhere near to $100 million in sales in your first few years … but, do you even need to?

Make your business plans ‘real life’ … that’s my advice 🙂

What is a good BUSINESS idea?

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http://www.youtube.com/watch?v=GS04yv4xgpE

I like this guy’s tips … his delivery is a bit dry and antiquated (overhead transparencies?! What’up w’dat, man?) … but, what do you expect from an attorney?

Pay attention to his Tip # 3: he makes an excellent point about the differences between a Good Idea and a Good Business Idea … listen up!

I don’t agree that you need to throw equity all over the place to get the skills that you need for # 4 … sometimes you can buy in the necessary skills … and, sometimes you can’t. Just be selective as to whom you invite to your party 🙂