Alone in the Crowd
February 27, 2008
There is nothing so lonely as the realisation that despite your great idea and your overflowing passion and vision, you’re simply at the rear of a long queue of entrepreneurs seeking funding.
Understanding the criteria venture capitalists will use to evaluate your project is an important next step - if your venture is ever to get funded.
While a high score in each of the following categories isn’t essential, it will be almost impossible to attract capital if you don’t score well in most categories.
Captivating idea
Good ideas are surprisingly common and a seasoned investor has already rejected countless pitches in their career. You’ll need to convince them that your project is an elegant solution to a big problem or opportunity.
Strong Team
It is expected that there’ll be some gaps in your team, but the founders must have the skills, talent and experience required to build the business. Few lone entrepreneurs ever get funded. If you haven’t already attracted some other ‘believers’ then your preaching will almost certainly fall on deaf ears.
Market Opportunity
Investment’s Holy Grail is to create a ‘must-have’ product in an uncrowded market. Few ideas are that lucky or unique, but your concept must still have credible potential to deliver significant value in a proven market. Fortunately, the size of the business potential matters far more than the size of the market.
Advanced Technology
Geeks and and early adopters may be thrilled with your concept, but it must also have the potential to attract a broader range of users. If you are at the cutting-edge of technology, you’ll need strategies to keep you ahead of the pack and outpacing the inevitable horde of imitators.
Competitive Advantage
Brag about your idea having no potential competitors and you’ll often bring a hasty end to your pitch. It is naive to believe that others don’t have similar ideas, can’t soon reverse engineer or replicate the concept or that there isn’t a viable alternative in existence somewhere.
It is well understood that your financial projections are a series of estimates based on numerous assumptions. Expect your forecasts to go under the microscope and be ready with convincing reasoning on how you calculated growth rates, profit forecasts and expenses. If your team doesn’t have the nous to bring together credible estimates, it’s highly unlikely that you’ll have the business acumen required to make those figures bankable reality.
Proof of Concept
Be prepared to validate your concept with tangible evidence. Your pitch will gain credibility if you can show evidence of a strong core team, customer testimonials, backing from industry experts, solid market research and supply guarantees. Ask yourself some tough questions and look for the gaps or weaknesses in your own logic, methods or strategies.
Photo by Gaetan Lee
Consideration
February 27, 2008
No binding legal agreement can be formed without the presence of at least one drop of consideration.
If a person makes a gratuitous promise it will not be binding unless something is exchanged or “buys” that promise. That extra element given to acquire an undertaking - either to do something or not to do something - is consideration.
Consideration is a bit tricky to grasp at first because it can be so intangible. It is an important legal concept however as although the forms consideration can take are almost infinitely varied, the absence of consideration is fatal to the existence of an agreement.
Hundreds of years of law have built up numerous rules concerning consideration, but a few simple rules will give you the general idea:
- while the consideration must be of some value (at least from a legal viewpoint) that does not mean that it needs to be valuable;
- consideration needs to flow from the one receiving the promise, but the benefit of that promise can be directed to anyone nominated to receive the promise; and
- the consideration must relate to some future undertaking to either do or not do something as it can’t relate to ‘past’ consideration which has already been given.
Importantly, an absence of consideration can be overcome by documenting the agreement as a deed rather than as an agreement. Deeds do not require the presence of consideration to be legally binding and enforceable.
The other primary difference between a deed and an agreement is the way the deed is signed (or ‘executed’ in legal speak). There are certain legal formalities that a lawyer can guide you thorough in the execution process to ensure the deed is validly signed. In most other respects a deed and an agreement are very similar documents.
Photo by tanakawho
Deed of Release
February 27, 2008
The Deed of Release is one of the most adaptable documents in any legal tool box.
It usually is a brief, but carefully targeted, document used to either bring a dispute to an end or to prevent one from ever arising.
Such a document could be used to evidence the settlement ‘deal’ between the parties.
One party undertakes to pay a certain amount or to do a specific act and the other party agrees that it will be prevented from making any further claims related to that matter.
A common use is where an employee is being paid a redundancy amount. In those circumstances, the employer and employee execute a Deed or Release and it is agreed that the payment of the redundancy amount will bar any further employment-related claims.
Another common use is where ligation is under way between the parties. You’ve probably frequently heard news reports which state that something was “settled out of court” and the “terms of the settlement are confidential”. A Deed of Release would be the document behind that aspect of the news story.
The common provisions in a Deed of Release are:
- without any admission of liability the parties agree to settle the matter;
- a description of what Party A must do;
- a description of what Party B must do;
- the terms and scope of the unconditional release;
- a bar to any further legal proceedings;
- confidentiality undertakings;
- a warranty that:
- each party has the capacity to enter into the Deed;
- entered into the Deed without any duress;
- had the opportunity to seek independent legal advice;
- understood the consequences of entering in the Deed;
- knows the other party is relying on the undertaking being given; and
- neither party gave any other promises, representations or inducements.
Of course, a Deed of Release usually includes some boilerplate clauses and some interpretation boilerplate.
It is also standard practice to execute the document as a deed rather than an agreement as this overcomes any concerns about the possible absence of consideration.
Photo by angela7dreams
Evolution of Tax
February 25, 2008
Benjamin Franklin is credited with stating that there are only two certainties in life: death and taxes.
Even in Franklin’s day, taxation was not new. Hammurabi produced some of the first written laws as far back as 1792 BC and, sure enough, tax law was a significant component of the legislation the Babylonian emperor carved into a six foot tall stone tablet.
Although Hammurabi’s laws were literally set in stone, tax law has evolved through the centuries. Certain taxes have been abandoned as commerce and the way we live has changed.
Goods were often the primary target for tax revenue. I was about to give arrow shafts as an example of a good that was commonly taxed during the Middle Ages. I had thought such taxes were abandoned as weaponry changed and new taxation sources were identified. Instead, a Google search to check my facts revealed the error of my thinking. Remarkably, arrow shafts continue to be taxed in the United States.
Leaving that anomaly aside, it is a fact that taxation regimes have evolved as successive governments devised new ways to fund government expenditure and ‘manipulate’ their political landscape.
Emperors, kings and feudal lords once levied tithes, taxes or duties to pay for wars or the upkeep of castles and palaces or other public projects. Surprisingly, Income Tax was not introduced though until comparatively recent times. The idea to tax income originated in Britain in 1798 when there was an urgent need to fund the Napoleonic wars. Though it was introduced as a temporary tax, it looks certain to out-live our great-grandchildren.
Of course we need schools, hospital and roads and the money has to come from somewhere. So taxes are undoubtedly of great utility when correctly applied. The question is whether smarter taxes could be levied. Taxes that have the effect of changing bad behaviours by introducing a cost for undesirable activities.
Some clever minds are already working on this and they have some interesting proposals.
Continue reading »
Smart Tax Ideas
February 25, 2008
Most of us already accept the wisdom of tobacco taxes which have the dual benefit of raising revenue and discouraging consumption of a product that places enormous costs on the health system.
In contrast, critics oppose the taxation of income and other desirable social outcomes and argue that our tax system should more effectively target undesirable activities and outcomes.
Dr Nicholas Gruen of Lateral Thinking advocates a reduction in taxation distortion by levying tax on bad things such as pollution and congestion. The resultant revenue could be used to reduce taxes on activities we don’t want to discourage. Stated in a another (rather lame) way: we should tax ‘bads’ not goods.
The recent international trend towards pollution taxation seems a clever application of the ‘dual benefit’ principle and such taxes are undoubtedly focused on one of modern society’s greatest challenges.
Carbon trading schemes are a close cousin to a pollution tax - provided the permits are sold rather than given away. So, the greenhouse gas emissions trading scheme which is scheduled for introduction in Australia in 2010 will be a major example of tax on bads.
An internationally far less common tax target is traffic congestion. Yet, traffic congestion is already a scourge for cities across the globe.
The case for taxing traffic is strengthened once the actual economic cost of a traffic jam is calculated. Congestion not only results in millions of hours of lost productivity, but there are also major car maintenance, fuel and environmental costs.
Ross Gittins wrote in the recent Sydney Morning Herald article that inspired this post that when you head out on the road “you also impose costs on others - you’re a “polluter” in the sense that, if you weren’t there, those in front and those behind you could be going faster”.
He cited a Bureau of Transport and Communication Economics estimate that in 1995 congestion in Australia’s capital cities cost about $13 billion a year - with Sydneysiders bearing nearly half the total. Any road commuter will confirm that 1995 is back in the ‘good old days’ when it comes to Sydney’s traffic snarls.
Singapore and London already tax the use of certain roads and city areas as well as peak hour driving. In effect, those who insist (or are compelled) to travel during the peak periods pay for the congestion cost they impose on others.
Perhaps it is unfair to some, but it does reduce the need to tax other activities. Not such a bad outcome when all things are considered.
Photo by beggs
Anatomy Basics
February 20, 2008
Describing the anatomy of legal documents is an inherently difficult task that is fraught with complexity and exceptions. What is true for some documents may be incorrect or inapplicable for others. The law that applies in various jurisdictions will also be a factor influencing diversity.
My comments are general observations. They must be tempered with common sense and applied with care.
Document names and terminology often vary simply due to personal preference.
Just as human anatomy is dependent on gender and age, legal anatomy is dependent on the nature and value of the transaction and, of course, on the level of potential liability.
Drafting a phone book sized agreement for a basic transaction is ludicrous. Certainty and clarity can be equally achieved in smaller documents. Deals can also be lost if they are unnecessarily delayed while minor terms are haggled and that leads to continual redrafting. It is equally true that it is financially impractical to over-engineer a transaction or to incur huge legal costs for a low risk or low value transaction.
Knowing a person’s age and identity tells you very little about the person’s personality, interests, facial appearance or sense of humour. It’s the same with this information… accept it for what it is and use it knowing there is a lot more still to be considered and applied.
Knowing the law is useful, but knowing how to wisely use it should be our goal. This primer should be backed up by advice from a clear, concise and commercially-astute lawyer.
Anyway enough of my caveat emptor (“buyer beware”) rant. I hope the following skeletal overviews amount to a basic User’s Manual that makes the law a more useful tool in your hand:
- Deed of Confidentiality
- Heads of Agreement
- Shareholders Agreement
- Deed of Release
- Boilerplate
- Interpretation Boilerplate
Photo by Patrick J. Lynch
An Overview
February 20, 2008
Standing on the brink of launching out can be a great moment of truth. It is a valuable chance to discover if you have what it takes or whether you should fall into line at the rear of the herd. Surprisingly few have enough daring to take that plunge.
Sure you might fail, but the real issue is whether you’ll turn around and have another go. Success often only comes after repeated attempts.
Read how Bill Gates failed in his first business venture and then went onto to enjoy far more than a modicum of success in his next attempt. Amazing perseverance was required to bring Rocky to production and yet it went onto to be one of the most successful movies in history - great lessons for us all.
Being a Contender
Something deep within the human psyche was expressed in Marlon Brando’s famous lines from On the Waterfront, “I could have been a contender… “. Here’s some tips on how you can have a ’shot at the title’ - and make success happen!
Continue reading »
Embracing Failure
Bill Gates failed in his first business while Sylvester Stallone endured years of rejection and near-destitution before his determination resulted in Oscar success. Some thoughts on the endurance and persistence required if you are to taste sweet success.
Continue reading »
Business Survival Rates
Recent statistic indicate there may be improvements in the survival rates for new businesses, but what factors make the difference between those who prosper and those who perish?
Continue reading »
Always Take a Macro View
February 19, 2008
Whether you’re selling your business, signing-up for a project, or finalising any other deal, the first step is to get a good overview of the deal in your own mind. Always remember basic concepts and keep reverting to a macro view of your overall strategy so you can maintain your bearings.
There is considerable flexibility in how a deal is documented and progressed. The main aim in any deal, and any well-drafted legal document, is clarity of the key terms: What is to be done? When? How much is to be paid? Who is liable if things go wrong? Of course, many other issues must eventually be recorded and there’s no shortage of distracting issues.
A deal should be built to suit the particular transaction, its timetable and each party’s concerns. Interim documents can sometimes be bypassed or selectively used – just like selecting a particular item from a legal tool kit. The only really mandatory document is the final detailed Agreement.
Keep the transaction simple and don’t let the other party bamboozle you with unnecessary complexity or with jargon and terminology.
Let’s work through what deal building tools you can use if they are seeking a Deed of Confidentiality, Deed of Non-Disclosure, Deal Memo, Term Sheet, Heads of Agreement, Memorandum of Understanding or Letter of Intent.
Continue reading »
Photo by notsogoodphotography
Being a Contender
February 19, 2008
Ok, hands up if you also “could’ve been a contender”. Something deep within the human psyche was expressed in Marlon Brando’s famous lines from On the Waterfront, “I could have been a contender. I could have been somebody, instead of a bum, which is what I am.”
I plead guilty. There was my half finished story outline of life in an ant colony and numerous discussions with friends about the Butterfly Effect and how the concept had script potential. Both rattled around in my head long before similar ideas became movies.
Full credit goes to those who overcame their inertia to lead a once vague and fragile idea through the creative wilderness until it eventually became a well deserved success. They succeeded where I failed - at least in those areas.
The causes behind this inertia seem to be hard-wired into humanity.
1. Being too busy - the consistent demands of life weigh us down and we keep lurching from one task to the next with little time for planning or reflection. Days pass, then weeks, then months…. oops there goes a decade!
2. Lack of confidence - uncertainty about your abilities, goals, motives or potential (or a combination of the above) undermines our resolve and we tend to wait until ‘things improve’ or postpone action until ‘next year’ or any other self-appeasing reason for inaction.
3. Feelings of unworthiness - the nagging worry that somehow others are more worthy or more capable is toxic if mixed with the suspicion that life has dealt you a dud hand.
4. Lack of skills or experience - the very real limitations of that old conundrum where you can’t get the job without experience and you can’t get the experience without doing the job.
5. Fear - Although most of our fears never actually eventuate, we tend to forget that statistical fact when we sink into dread about our next big worry.
A recent skelliewag post on The Audacity of… Failure contained a great quote:
“I’ve missed more than 9000 shots in my career. I’ve lost almost 300 games. 26 times, I’ve been trusted to take the game winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed.”
– Michael Jordan
Dangers of Discounting
February 19, 2008
The urge to discount should be continually resisted.
Don’t destroy your business in the mistaken belief that higher turnover equals more profits. That slash and burn approach to pricing has led many businesses to a sad ending.
Before you ever lower a price, get out your calculator and do the sums. You may be stunned to find out how much extra work will be required to make the same profit.
A simplistic example may help illustrate the point.
1. Assume I do ten $10,000 jobs where I make a 30% margin and it results in $30,000 net profit from all ten jobs.
2. If the practice of giving a 10% discount on each job became entrenched (or my discounts over the next ten jobs averaged $1,000), the result would be:
* a net profit of $20,000 for the next ten jobs; or
* doing 15 jobs to again have a net profit of $30,000.
Jobs
Revenue
Cost
Net Profit
10
$ 10,000
$7,000
$ 30,000
10
$ 9,000
$7,000
$ 20,000
15
$ 9,000
$7,000
$ 30,000
What a stark truth! If I regularly give a 10% discount, I have to do 50% more work to make the same amount of money.
Of course, this is all based on a margin of 30%. Discounts pose an even greater threat if you are trading on slimmer margins.
Not only will you have to work harder to maintain profits, but your costs may significantly increase due to the extra work. Not only will staff and equipment costs rise, but numerous less obvious costs may also have an impact. Take the time to work through those hidden costs to see just how much the extra work is really costing and examine just how thin your margins really are.
No company can sustain extended periods of discounting. Well established companies may give the appearance of heavily discounting, but don’t be fooled by their marketing. If the discounts are genuine they can only offer them because of large buying power, switch selling or they have the rare good fortune to be selling high margin products.
You can be sure that any successful trader long ago learned how to make money and is not in the business of giving it away through uncontrolled discounts.
If a discount is to be offered, use it for a special purpose like clearing old stock. Or, if you are a service provider, link the discount to the job’s margin and not the overall fee revenue. Just imagine how magnified a “little” discount can be if it applies to the whole revenue.
In summary, uncontrolled discounts are commercial poison. Don’t routinely discount unless you ready to enjoy early retirement.
Photo by CarbonNYC
It is well understood that your financial projections are a series of estimates based on numerous assumptions. Expect your forecasts to go under the microscope and be ready with convincing reasoning on how you calculated growth rates, profit forecasts and expenses. If your team doesn’t have the nous to bring together credible estimates, it’s highly unlikely that you’ll have the business acumen required to make those figures bankable reality.
Proof of Concept
Be prepared to validate your concept with tangible evidence. Your pitch will gain credibility if you can show evidence of a strong core team, customer testimonials, backing from industry experts, solid market research and supply guarantees. Ask yourself some tough questions and look for the gaps or weaknesses in your own logic, methods or strategies.
| Photo by Gaetan Lee |
Consideration
February 27, 2008
No binding legal agreement can be formed without the presence of at least one drop of consideration.
If a person makes a gratuitous promise it will not be binding unless something is exchanged or “buys” that promise. That extra element given to acquire an undertaking - either to do something or not to do something - is consideration.
Consideration is a bit tricky to grasp at first because it can be so intangible. It is an important legal concept however as although the forms consideration can take are almost infinitely varied, the absence of consideration is fatal to the existence of an agreement.
Hundreds of years of law have built up numerous rules concerning consideration, but a few simple rules will give you the general idea:
- while the consideration must be of some value (at least from a legal viewpoint) that does not mean that it needs to be valuable;
- consideration needs to flow from the one receiving the promise, but the benefit of that promise can be directed to anyone nominated to receive the promise; and
- the consideration must relate to some future undertaking to either do or not do something as it can’t relate to ‘past’ consideration which has already been given.
Importantly, an absence of consideration can be overcome by documenting the agreement as a deed rather than as an agreement. Deeds do not require the presence of consideration to be legally binding and enforceable.
The other primary difference between a deed and an agreement is the way the deed is signed (or ‘executed’ in legal speak). There are certain legal formalities that a lawyer can guide you thorough in the execution process to ensure the deed is validly signed. In most other respects a deed and an agreement are very similar documents.
| Photo by tanakawho |
Deed of Release
February 27, 2008
The Deed of Release is one of the most adaptable documents in any legal tool box.
It usually is a brief, but carefully targeted, document used to either bring a dispute to an end or to prevent one from ever arising.
Such a document could be used to evidence the settlement ‘deal’ between the parties.
One party undertakes to pay a certain amount or to do a specific act and the other party agrees that it will be prevented from making any further claims related to that matter.
A common use is where an employee is being paid a redundancy amount. In those circumstances, the employer and employee execute a Deed or Release and it is agreed that the payment of the redundancy amount will bar any further employment-related claims.
Another common use is where ligation is under way between the parties. You’ve probably frequently heard news reports which state that something was “settled out of court” and the “terms of the settlement are confidential”. A Deed of Release would be the document behind that aspect of the news story.
The common provisions in a Deed of Release are:
- without any admission of liability the parties agree to settle the matter;
- a description of what Party A must do;
- a description of what Party B must do;
- the terms and scope of the unconditional release;
- a bar to any further legal proceedings;
- confidentiality undertakings;
- a warranty that:
- each party has the capacity to enter into the Deed;
- entered into the Deed without any duress;
- had the opportunity to seek independent legal advice;
- understood the consequences of entering in the Deed;
- knows the other party is relying on the undertaking being given; and
- neither party gave any other promises, representations or inducements.
Of course, a Deed of Release usually includes some boilerplate clauses and some interpretation boilerplate.
It is also standard practice to execute the document as a deed rather than an agreement as this overcomes any concerns about the possible absence of consideration.
| Photo by angela7dreams |
Evolution of Tax
February 25, 2008
Benjamin Franklin is credited with stating that there are only two certainties in life: death and taxes.
Even in Franklin’s day, taxation was not new. Hammurabi produced some of the first written laws as far back as 1792 BC and, sure enough, tax law was a significant component of the legislation the Babylonian emperor carved into a six foot tall stone tablet.
Although Hammurabi’s laws were literally set in stone, tax law has evolved through the centuries. Certain taxes have been abandoned as commerce and the way we live has changed.
Goods were often the primary target for tax revenue. I was about to give arrow shafts as an example of a good that was commonly taxed during the Middle Ages. I had thought such taxes were abandoned as weaponry changed and new taxation sources were identified. Instead, a Google search to check my facts revealed the error of my thinking. Remarkably, arrow shafts continue to be taxed in the United States.
Leaving that anomaly aside, it is a fact that taxation regimes have evolved as successive governments devised new ways to fund government expenditure and ‘manipulate’ their political landscape.
Emperors, kings and feudal lords once levied tithes, taxes or duties to pay for wars or the upkeep of castles and palaces or other public projects. Surprisingly, Income Tax was not introduced though until comparatively recent times. The idea to tax income originated in Britain in 1798 when there was an urgent need to fund the Napoleonic wars. Though it was introduced as a temporary tax, it looks certain to out-live our great-grandchildren.
Of course we need schools, hospital and roads and the money has to come from somewhere. So taxes are undoubtedly of great utility when correctly applied. The question is whether smarter taxes could be levied. Taxes that have the effect of changing bad behaviours by introducing a cost for undesirable activities.
Some clever minds are already working on this and they have some interesting proposals.
| Continue reading » |
Smart Tax Ideas
February 25, 2008
Most of us already accept the wisdom of tobacco taxes which have the dual benefit of raising revenue and discouraging consumption of a product that places enormous costs on the health system.
In contrast, critics oppose the taxation of income and other desirable social outcomes and argue that our tax system should more effectively target undesirable activities and outcomes.
Dr Nicholas Gruen of Lateral Thinking advocates a reduction in taxation distortion by levying tax on bad things such as pollution and congestion. The resultant revenue could be used to reduce taxes on activities we don’t want to discourage. Stated in a another (rather lame) way: we should tax ‘bads’ not goods.
The recent international trend towards pollution taxation seems a clever application of the ‘dual benefit’ principle and such taxes are undoubtedly focused on one of modern society’s greatest challenges.
Carbon trading schemes are a close cousin to a pollution tax - provided the permits are sold rather than given away. So, the greenhouse gas emissions trading scheme which is scheduled for introduction in Australia in 2010 will be a major example of tax on bads.
An internationally far less common tax target is traffic congestion. Yet, traffic congestion is already a scourge for cities across the globe.
The case for taxing traffic is strengthened once the actual economic cost of a traffic jam is calculated. Congestion not only results in millions of hours of lost productivity, but there are also major car maintenance, fuel and environmental costs.
Ross Gittins wrote in the recent Sydney Morning Herald article that inspired this post that when you head out on the road “you also impose costs on others - you’re a “polluter” in the sense that, if you weren’t there, those in front and those behind you could be going faster”.
He cited a Bureau of Transport and Communication Economics estimate that in 1995 congestion in Australia’s capital cities cost about $13 billion a year - with Sydneysiders bearing nearly half the total. Any road commuter will confirm that 1995 is back in the ‘good old days’ when it comes to Sydney’s traffic snarls.
Singapore and London already tax the use of certain roads and city areas as well as peak hour driving. In effect, those who insist (or are compelled) to travel during the peak periods pay for the congestion cost they impose on others.
Perhaps it is unfair to some, but it does reduce the need to tax other activities. Not such a bad outcome when all things are considered.
| Photo by beggs |
Anatomy Basics
February 20, 2008
Describing the anatomy of legal documents is an inherently difficult task that is fraught with complexity and exceptions. What is true for some documents may be incorrect or inapplicable for others. The law that applies in various jurisdictions will also be a factor influencing diversity.
My comments are general observations. They must be tempered with common sense and applied with care.
Document names and terminology often vary simply due to personal preference.
Just as human anatomy is dependent on gender and age, legal anatomy is dependent on the nature and value of the transaction and, of course, on the level of potential liability.
Drafting a phone book sized agreement for a basic transaction is ludicrous. Certainty and clarity can be equally achieved in smaller documents. Deals can also be lost if they are unnecessarily delayed while minor terms are haggled and that leads to continual redrafting. It is equally true that it is financially impractical to over-engineer a transaction or to incur huge legal costs for a low risk or low value transaction.
Knowing a person’s age and identity tells you very little about the person’s personality, interests, facial appearance or sense of humour. It’s the same with this information… accept it for what it is and use it knowing there is a lot more still to be considered and applied.
Knowing the law is useful, but knowing how to wisely use it should be our goal. This primer should be backed up by advice from a clear, concise and commercially-astute lawyer.
Anyway enough of my caveat emptor (“buyer beware”) rant. I hope the following skeletal overviews amount to a basic User’s Manual that makes the law a more useful tool in your hand:
- Deed of Confidentiality
- Heads of Agreement
- Shareholders Agreement
- Deed of Release
- Boilerplate
- Interpretation Boilerplate
| Photo by Patrick J. Lynch |
An Overview
February 20, 2008
Standing on the brink of launching out can be a great moment of truth. It is a valuable chance to discover if you have what it takes or whether you should fall into line at the rear of the herd. Surprisingly few have enough daring to take that plunge.
Sure you might fail, but the real issue is whether you’ll turn around and have another go. Success often only comes after repeated attempts.
Read how Bill Gates failed in his first business venture and then went onto to enjoy far more than a modicum of success in his next attempt. Amazing perseverance was required to bring Rocky to production and yet it went onto to be one of the most successful movies in history - great lessons for us all.
Being a Contender
Something deep within the human psyche was expressed in Marlon Brando’s famous lines from On the Waterfront, “I could have been a contender… “. Here’s some tips on how you can have a ’shot at the title’ - and make success happen!
| Continue reading » |
Embracing Failure
Bill Gates failed in his first business while Sylvester Stallone endured years of rejection and near-destitution before his determination resulted in Oscar success. Some thoughts on the endurance and persistence required if you are to taste sweet success.
| Continue reading » |
Business Survival Rates
Recent statistic indicate there may be improvements in the survival rates for new businesses, but what factors make the difference between those who prosper and those who perish?
| Continue reading » |
Always Take a Macro View
February 19, 2008
Whether you’re selling your business, signing-up for a project, or finalising any other deal, the first step is to get a good overview of the deal in your own mind. Always remember basic concepts and keep reverting to a macro view of your overall strategy so you can maintain your bearings.
There is considerable flexibility in how a deal is documented and progressed. The main aim in any deal, and any well-drafted legal document, is clarity of the key terms: What is to be done? When? How much is to be paid? Who is liable if things go wrong? Of course, many other issues must eventually be recorded and there’s no shortage of distracting issues.
A deal should be built to suit the particular transaction, its timetable and each party’s concerns. Interim documents can sometimes be bypassed or selectively used – just like selecting a particular item from a legal tool kit. The only really mandatory document is the final detailed Agreement.
Keep the transaction simple and don’t let the other party bamboozle you with unnecessary complexity or with jargon and terminology.
Let’s work through what deal building tools you can use if they are seeking a Deed of Confidentiality, Deed of Non-Disclosure, Deal Memo, Term Sheet, Heads of Agreement, Memorandum of Understanding or Letter of Intent.
| Continue reading » | Photo by notsogoodphotography |
Being a Contender
February 19, 2008
Ok, hands up if you also “could’ve been a contender”. Something deep within the human psyche was expressed in Marlon Brando’s famous lines from On the Waterfront, “I could have been a contender. I could have been somebody, instead of a bum, which is what I am.”
I plead guilty. There was my half finished story outline of life in an ant colony and numerous discussions with friends about the Butterfly Effect and how the concept had script potential. Both rattled around in my head long before similar ideas became movies.
Full credit goes to those who overcame their inertia to lead a once vague and fragile idea through the creative wilderness until it eventually became a well deserved success. They succeeded where I failed - at least in those areas.
The causes behind this inertia seem to be hard-wired into humanity.
1. Being too busy - the consistent demands of life weigh us down and we keep lurching from one task to the next with little time for planning or reflection. Days pass, then weeks, then months…. oops there goes a decade!
2. Lack of confidence - uncertainty about your abilities, goals, motives or potential (or a combination of the above) undermines our resolve and we tend to wait until ‘things improve’ or postpone action until ‘next year’ or any other self-appeasing reason for inaction.
3. Feelings of unworthiness - the nagging worry that somehow others are more worthy or more capable is toxic if mixed with the suspicion that life has dealt you a dud hand.
4. Lack of skills or experience - the very real limitations of that old conundrum where you can’t get the job without experience and you can’t get the experience without doing the job.
5. Fear - Although most of our fears never actually eventuate, we tend to forget that statistical fact when we sink into dread about our next big worry.
A recent skelliewag post on The Audacity of… Failure contained a great quote:
“I’ve missed more than 9000 shots in my career. I’ve lost almost 300 games. 26 times, I’ve been trusted to take the game winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed.”
– Michael Jordan
Dangers of Discounting
February 19, 2008
The urge to discount should be continually resisted.
Don’t destroy your business in the mistaken belief that higher turnover equals more profits. That slash and burn approach to pricing has led many businesses to a sad ending.
Before you ever lower a price, get out your calculator and do the sums. You may be stunned to find out how much extra work will be required to make the same profit.
A simplistic example may help illustrate the point.
1. Assume I do ten $10,000 jobs where I make a 30% margin and it results in $30,000 net profit from all ten jobs.
2. If the practice of giving a 10% discount on each job became entrenched (or my discounts over the next ten jobs averaged $1,000), the result would be:
* a net profit of $20,000 for the next ten jobs; or
* doing 15 jobs to again have a net profit of $30,000.
| Jobs | Revenue | Cost | Net Profit |
| 10 | $ 10,000 | $7,000 | $ 30,000 |
| 10 | $ 9,000 | $7,000 | $ 20,000 |
| 15 | $ 9,000 | $7,000 | $ 30,000 |
What a stark truth! If I regularly give a 10% discount, I have to do 50% more work to make the same amount of money.
Of course, this is all based on a margin of 30%. Discounts pose an even greater threat if you are trading on slimmer margins.
Not only will you have to work harder to maintain profits, but your costs may significantly increase due to the extra work. Not only will staff and equipment costs rise, but numerous less obvious costs may also have an impact. Take the time to work through those hidden costs to see just how much the extra work is really costing and examine just how thin your margins really are.
No company can sustain extended periods of discounting. Well established companies may give the appearance of heavily discounting, but don’t be fooled by their marketing. If the discounts are genuine they can only offer them because of large buying power, switch selling or they have the rare good fortune to be selling high margin products.
You can be sure that any successful trader long ago learned how to make money and is not in the business of giving it away through uncontrolled discounts.
If a discount is to be offered, use it for a special purpose like clearing old stock. Or, if you are a service provider, link the discount to the job’s margin and not the overall fee revenue. Just imagine how magnified a “little” discount can be if it applies to the whole revenue.
In summary, uncontrolled discounts are commercial poison. Don’t routinely discount unless you ready to enjoy early retirement.
| Photo by CarbonNYC |