Generating cash

At some point during a company’s growth there may be an opportunity to improve its position and/or valuation with a cash injection.  Examples of this could be:

  1. Selling more products or services
  2. Developing new products or services to sell
  3. Changing company ownership structure
  4. All or some of the above

There are three main ways to generate cash.

  1. Profit
  2. Debt
  3. Investment

This is what we will explore in this blog.

Profit results from successfully solving customer’s problems with your product or service for less money than they paid you to do it.  Every time you successfully sell a product or service you add to your cash balance, which grows on your balance sheet as an asset.

Debt is money you get now to be paid back with future profits or investment.  This works well as long as you can accurately project future profits.  Inexperienced business owners often overestimate sales and underestimate the cost of those sales.   This leads to decreased profit and a potential inability to pay back debt or attract investment.

Debt can also be in the form of sweat, which means people can contribute their time and effort anticipating being paid in the future when the company starts making a profit or attracts investment.

If the company succeeds, it may pay back people’s contributed effort with cash or it may convert that contribution into an investment into the company.  This depends on what was agreed to by the two parties before the contribution was made.

Investment comes either from selling a slice of all your future profit and/or securing a grant.  These things can be pursued together making each other more attractive.  This works best when your business plan aligns the grant with cash investment.

To sell a slice of your business, you need to create a present day value for your future profits and then decide how much you are prepared to sell a fraction of it for.  There are a bunch of ways to value your business and you should get advice from your accountant at a minimum on this.

If you are going to sell a slice of all your future profits you need to consider who is going get it and what will they do with it.  I once sold a percentage of a business to its largest customer, which mostly worked out.

If your business hasn’t proved itself to gain a sufficient valuation, you may be able to get people you know — typically friends and family — to invest in your business.  These investors are usually backing you because they know and trust you.

Don’t break the trust and be really straight with them about the probability of them losing their money.

Don’t ask anyone close to you to invest in your business if you haven’t put everything of your own in first.  You are pitching for people to take a leap of faith in you.  You may only get to do that once in a lifetime with some people.

Be aware that this can go horribly wrong and I have seen many families and friends fall out over ideas that didn’t work out.   Then again, Jeff Bezos borrowed money from his parents and created Amazon, but nothing is certain.

If you can demonstrate in a clear plan how money can be made from investing in your business, you could be ready to pitch to real investors.  No warm and fuzzies here.  These people will like you as long as you are doing what you said you would and your company is delivering what you stated in your business plan.

It’s not likely they’re going to be the same type of person who will invest in your early stages.

Real fundraising is much harder than it looks.  Well it’s easy to do badly and hard to do successfully.

I’ve done both and this is what I learnt.

Don’t do it too early.

It’s too hard to really know maybe even in the first year whether people should be investing in this company.

You’ve got to prove your idea at some level; you need some evidence enabling you with good conscience to ask people to put money into your company.

It’s not hard to get a bit of evidence like an anchor sale, which demonstrates if you think you’re going to be able to sell a hundred of them, show me how you can sell one.

Study your first sale, see what the real cost was and then show me how you can sell a second and a third.  Hopefully by the time you’re at a hundredth sale you’re actually making more profit, which is usually what you promised was going to happen.

Create your investment pitch with a process in a defined time.

My advice is have an absolute clear business plan — clear, clear, clear, clear, clear. The narrative’s clear, the logic’s clear, and the numbers are accurate.  It may be describing something out there!  But at least it adds up.

Create the narrative, logic and model of numbers that join the dots to a path of a valuation.

Know all your multipliers driving the numbers supporting valuation and make certain anybody considering buying in understands what you are trying to do mathematically.

Investors

The difference between friends and family, angel and professional investors is huge.  It moves on a spectrum of deep investment in people at one end and strictly business at the other.

The rigor required to move along the investor spectrum from family to professional increases significantly at each stage.  The due diligence your plan will be subjected to is designed to stress test everything, including strategy, performance and people.

About this picture

When you visit the United Emirates you know you have landed in a cash creating region.  Building a Ferrari theme park in the desert is a sign that there could be way too much cash around.

You know you have a good travel buddy when you inevitably start fighting with each other on a travel adventure and not let that interrupt your hectic schedule.   This day was one of those days.  An argument had been brewing and we were going to have it out and I am sure we became one of the attractions at the theme park.

We laughed about this later recalling the looks on peoples faces.  I am grateful to have had such a great companion who could stop mid argument and say stand there, I think this would make a great pic.

 

 

Selling and negotiating

When somebody tells me they are starting a business, I have a bunch of reactions at the same time.

It’s usually a mixture of excitement and concern.  I love the enthusiasm people have when they are beginning a business adventure.  I get a little anxious knowing some of the challenges they will face and that their base probability of success is not high.

There is no exact formula to being successful or even repeating successful strategies. Whenever you start a new company, it is a little like starting a new game.  You only get to bring what you learnt so far and you should be getting better the more you do it.

There are some things you can do or learn anytime from any starting point that will give you advantages in this game.  I will be exploring that idea in this blog.

The game looks like this:

  1. Find a problem worth solving.
  2. Produce a unique and profitable solution and supply it effectively.

There are many ways to prepare for this game and, especially if you have limited resources, this is a good start.

  1. Learn sales.
  2. Learn to negotiate.
  3. Model, plan and execute.

Sales teaches you how to build a business inside another business, which is a very useful skill.

If you have never sold before or had limited bad experiences, give up that you know what good selling is and be prepared to learn from the ground up.

Get some good coaching, learn the basics and become a master of pipeline development.  Get an understanding that marketing generates leads that become customers with good selling.

Don’t try to teach yourself sales; your preconceptions and opinions will get in your way.

Get a sales job if you can and learn how it relates to the rest of the business.  It can be part time or full time and can be selling anything.

Learn that selling has nothing to do with convincing everyone you meet to buy anything.

Discover that it has more to do with finding and collecting customers who have  problems you can solve.  If you are fair, reliable and hardworking, you will be good at this and it will be something worth experiencing.

Learn how to negotiate.  I listen to a lot of people complaining about a deal or arrangement they are in.  When I ask them what they would rather have, they aren’t usually that clear.

If you don’t think you are getting what you are worth, consider that you never asked for anything specific and therefore should be grateful for whatever you got.

Learn to explain to people what is ideal for you.  It doesn’t mean that is your final position.

Sometimes when people request something from me and tell me how it would be ideal for them if it were done a certain way or for a set price, I think, yeah, that’s fair enough.  Sometimes I think, how about this instead?  It is always great when both parties are clear what looks good to each other.

Neither party should walk away from any negotiation having left something on the table.

Compromise is fine; being bitter about something you didn’t mention doesn’t help anyone.

Speak up.  People can accept or reject your offer.  Nobody is ever going to give an ideal outcome unless you ask for it.

If you have a story you like to tell everyone that you are an introvert, or shy, or a conflict avoider, or something that forces you not to present your view, then stop doing that.  Your future company is relying on you speaking on its behalf.

Get used to being in uncomfortable conversations because they can be the most interesting of all.

Notice yourself when you are reacting to words being spoken by people and just be with it.  Tune in to what they are saying and interrupt if you missed something or want clarity.  It is fun being exactly on the same page.

Model, plan and execute as a mode of operation.  In that order.  On everything you want to develop.

I always ask people to send me their current business plan.  I tell them not to prepare anything, just send me what they are working to right now.  Mostly what I get is insufficient.  Often it is nothing or just a set of accounts, or a slide deck, which is useful but not enough.

When I committed to coach ten thousand entrepreneurs I took on a responsibility to ensure I was heard when I said something important and that I was listened to as an expert.

The things I discussed above are not things I think are just a good idea.  I reckon they are fundamental to increasing your probability of success.  If you aren’t getting the results you expected, try some of this.  It works.

About this picture

Circa March 2016

Back seat of a London bus with my cuz.  I was born in the UK and this was my first time back since my parents immigrated to Australia in the seventies.  One of my goals when I went to the UK was to spend a couple of days with each of my cousins and have some fun.

We had a great time.

Confessions of a blogger

When I first started this blog I built the WordPress site myself and I was very enthusiastic about it.

I really love to write but I guess I write like somebody who doesn’t work full time as a musician but likes to play an instrument.  It’s a hobby and not my day job.

I get to write a lot of business plans, marketing communications, sales communications and things like that.  It’s a better creative outlet than it sounds.

Writing the narrative of a great strategy is very satisfying.  I love generating a picture of today and a view of the future in words; it is very powerful.

As I was learning and building this site, I had this vision of getting up every day and my thoughts exploding on the page.  I saw myself blogging my way around the world and capturing everything in real time.

The reality was that I got as far as San Fran, first leg, met one of my favourite travel buddies and next thing, we are in Mexico, off the grid, drinking tequila on the beach.

Everything was happening quickly and I wanted to focus on being in the moment and not writing about the moment.  I realised what I had set up for my blogging adventure was insufficient and I wasn’t stopping to fix that.

Having abandoned my plan, I thought I would just take as many pictures as I could and collect as many thoughts as I could and work it all out later.

Then later comes along and it’s, man!  How am I ever going to make anything out of all this stuff?

So then nothing happens and I decide I am a pretty bad blogger.  As much as I like writing, I wasn’t prepared to do it like a job.

You are reading this now because I found a better way to do it, which I will explain as I go and hopefully you will find it useful.

About the photo

Circa December 2015, me in Panama, on the Panama canal, in a Panama hat, drinking a Panama beer.  By the dopey look on my face it may have been my sixth beer.

What I loved about this experience was the sense of accomplishment achieved by the construction of the canal.

Somebody had a big idea and then generated it with such force that a path was cut through a continent to allow us humans to get where we need to go faster.  We did that.

 

 

Web Money from the 90’s

 

Around this time of year, in Feb 2000, I was doing my best to sell the idea of on-line advertising to anyone who would listen to me.

We were a month into our successful IPO, we had a top 50 Australian website, number 1 in its category, and cashed up bunch of nerds who thought we knew what was going on, and that we knew what we were doing.

Everything was happening so quickly that every strategy seemed necessary to manage as it was happening.

With hindsight, we understand the impact the Internet has had on the world, back then it was happening for the first time and in real time.

One of the ideas we sold our Investors on was the potential of on line advertising for unique content creators.

What made me think of this today was reading an article from #Rueters on #Facebook regarding #Google generating $US22.4 Billion dollars in on line ad revenue for one quarter.

It occurred to me that this is a lot of money for an industry that did not exist for half my life.

On Line advertising, even in the 90’s made sense me.  Do more for less and better.

With my zero experience in the advertising world, I was reading everything i could get my hands on and working with people whom I thought knew more than most.

The smartest people I knew were telling me the strategy of selling banner ads on our highly trafficked website would start making money.

We could produce advertising space on the website visited by by circa 15 thousand investors a day for next nothing.  It was easy to set up and manage, all we needed to do was sell it.  What could go wrong?

What I didn’t think about at the time was all the people who were already making money advertising in older mediums, such as print or broadcasting.

There was a whole economy based around things staying as they were.

Every time I spoke to a business I was learning how they did all their advertising through an agency and the agencies always wanted their cut.

Today we deal in a percentages of a cent if necessary to charge for on line advertising.  Back then there were few tools to work with for the agencies and they were trying to protect their positions.

The bottom line was that it was slow movement to new media, well slow if you are living in a quarter to quarter start up.     So much was  happening so quickly, it made no sense to me that on line ads weren’t being picked up faster.

Because we would rotate adds every 20 seconds if wanted to, we could produce endless inventory.

All the agencies combined couldn’t sell it the way there were trying to do back then.  There had to be a better way.

Today buying on line advertising, particularly via Google or Facebook, and it is pretty straight forward.  It is cheap, compared to what you could buy before online ads, and it is measurable.

So there we were at peak of the tech bubble with a perfect product, offering huge profits, with very few buyers and some commentators calling it all BS.

One thing I was clear about, having no adverts on our website wasn’t a good look.  I asked our banner provider at the time what our options were and they suggested fillers, like Red Cross, Greenpeace, and World Vision.

We ended up selling the company in the same year and I  never got to play out the online ad game.

I did however get to endlessly promote all my favourite socially important institutions for about 12 months to about 50,000 active stock traders, which in hindsight was a great out come.

About the photo.     Circa 10:15am, Dec 22, 1999, the moment I realised we had successfully listed on the ASX.  2 minutes before this picture was the fist time since I started I thought, “what if nobody buys our stock?”     The photo was courtesy of the AFR, who after taking some more conservative photos, I asked if I could get one for myself with my sunglasses on in front of the exchange board.  Guess which one turned up in the paper, which I now think is great.

Facebook

 

One of the great things about blogging is choosing what to write and when to publish.

I am currently writing a lot of stuff on a bunch of things.  I am writing at all different times and inspired by various subjects.  Wordpress allows me to save posts as drafts and publish or polish whenever I want.  Very cool.

For my second post I am  going to start a category on social media and write about how I am going to use it to promote my blog.  I picked Facebook first because it is the one I know best and my main social media platform.

People seem to have a strong opinions on Facebook and what it should be used for.  I remember a world before the internet and social media.  I watched and participated in both as they evolved from virtually nothing to what they are today.

Currently there are over one billion people connected on Facebook. That is more than the combined population of USA, Japan, UK, Germany, France, Australia, Russia and Italy.  It is pretty huge.

In the musical chairs game of technology survival, only a few platforms will survive.  Facebook looks likely to be one of them.

I have a personal facebook page that I have used for many years. Over time I have used it more as tool for networking and communicating.

I love that it allows me to customise my news feed so that it only includes news I am interested in and from sources I want. I also love that intertwined with the news are updates from people I care about. I only follow positive people who are up for things in life.

I get that feed on every device and for me it is one of my primary interfaces with the Internet.

Recently I wanted to separate out my personal facebook identity from  my identity as expressed through this blog.  Sounds metaphysical.

What i had to do was create a separate facebook page, which I manage under my personal login. Doing this really got me to understand how the Facebook commercial model works.

Every time I publish a Blog, I will update my facebook page and everyone who liked that page will be notified of new content.

This means I can create a following from people finding this blog via  Facebook.  I have the same thing set up for twitter.  I am still thinking about Linkedin.  Google SEO is a subject for another day.

If you want any hands on advice about setting up your own FB page, I am happy to contribute, however I would say just jump in and give it a go, it is pretty straight forward.

About this picture

This is a picture I took of a  mural from Venice beach in California.

I discovered it by exploring Venice with a good friend of mine who I connected with on Facebook while I was in Cali.  I love street art and it has a facebook link in the bottom corner.

Although I have never met Mario the Artist from Venice Beach.  I do follow him on Facebook.  Click here to visit Mario from Venice

Going Solo

Not everything that happens in life is part of a well laid out plan. Recently I suddenly found myself out of the corporate workforce. The company I had worked for during the past five years went through a normal transformation and about one third of the incumbent team were let go.   Including me.

Although I had not planned for this to happen, I had planned to be self sufficient if I ever needed to be and this has led me to where I am today, very excited about what I am about to create next.

At the age of fifty, I have  experienced a great deal of the corporate work environment.  I have run several of my own companies,  crashed and burnt a couple, as well as listed a company on the Australian Stock exchange in 1999.  Dot com 1.0, good times.

I have spent time as a CEO of a CSIRO spin out, I have been a sales specialist at Telstra and recently a regional sales manager at Lifesize, a then division of logitech.  I have had a good run.

I am not certain exactly what I am going to do next and I do have some good ideas.  What I do know is I need a vehicle to do business from and I need a medium to communicate through.   This is what I have done so far:

  1. Register business
  2. Register internet domain,
    1. Using Godaddy, their customer support is some of the best I have ever experienced.  Is like getting the apple genius bar level of service over the phone.
    2. http://globalitytrading.com, only used for email at this stage.
    3. Using Vallender Dot Com for
      1. this blog
      2. Personal Email
  3. Set up Finance Function
    1. Bank Account, Recommended ANZ
    2. Accounting Package – Recommend Xero
  4. Set up Operations
    1. Set up Office 365 with Outlook  – I think Microsoft is having a resurgence
    2. Word Press, for this blog

I am really loving all the new Software as a Service, or SaaS as it is being called now.  Setting up my technology has been fun and fast.  The only thing I need to watch out for is that everything is a rabbit hole.  I find myself exploring all this new technology and justifying in real time how I could use it.   In the end I am keeping it simple.

If I am anything in life I am a pragmatist.  One thing I do know is I need to keep my cashflow positive and fortunately, I live on the smell of an oily rag.

I keep my expenses to a minimum, which means I don’t need to earn that much to keep going and my cash burn rate is slow.  I learnt that trick from building start ups 🙂

So now that I am going solo, this is what I am considering as my best options.

  1. Entrepreneurial consulting
  2. Creating a Youtube channel
  3. Traveling the world and Blogging\Vlgogging

So what does that look like?  I will save this for my next post 🙂

 

About the photo …

Taken in the floating village in Siem Reap, it was my first day on my own in Cambodia and I got to do whatever I wanted.  A friend of mine shared with me he did this trip and to bring some extra cash as you can contribute to the kids who went to one of the two schools floating above the river.

The boat driver earned very little.  Cannot even be sure but I think it was $100 per month.  He had his little brother with him also.  He was the bread winner in the family.   We got along quite well as I had my guide with me who translated the conversation.

The thing I love about traveling is learning more about me by learning about others.  Driving a rickety old boat down a river in an emerging nation and purchasing rice, soup and crackers to contribute to the local schools, man that was a powerfully created moment in my life.