The Art of Capital Raising

I get approached all the time by businesses/entrepreneurs/inventors looking to raise capital, and not understanding that they’re nowhere near ready to go chasing VC/PE/HNWI funds and particularly the current state of the business is best described as “uninvestable”.

So, before we get into the guts of this the very first thing we have to work out is “Are you, and your business, INVESTABLE ?”.

Determining Investability.

To determine the answer to this, you and your business need to be able to pass some important tests:

1. Is your business in a sector/industry/area that can support rapid, and sustainable, growth ?.

2. Can your business achieve a significant size and scale within a maximum of 2-3 years ?.

3. Can your business achieve much higher profitability than equivalent (eg: Competitor or “benchmark”) businesses ?.

4. Do you have the right team in place to make 2 and 3 above realistic ?.

5. What results do you have, in this business or previous businesses, to be considered a “reasonable bet” ?.

What Is The Best Way To Raise Venture Capital?.

[1] Get off to a “Smart Start”

• Have a simple company structure, with a sensible number of investors (more than 1 but less than 10).
• Have your employees, consultants, contractors and advisers engaged with well-documented agreements.
• Get your intellectual property well-protected.
• Have your “seed investors” and any business loans properly set up.
• Have good corporate governance practices in place, refer to my blog on this topic https://investoritis.wordpress.com/2010/03/27/what-does-good-governance-look-like/
• Have the right Legal/Financial providers in place – preferably “brand names” even if not the absolute best in their field.

[2] Be able to tell a Good Story about your business

• Know how to articulate the fundamentals of your business … all day, every day.
• Have a good bio on your Team, and how they deliver results for you (and any incoming Investors).
• What Problem do you solve, and/or what Opportunity are you exploiting.
• What Technology are you using/creating, and what is it a solution to/for.
• How can you deliver sustainable advantage (as/when the competition adapt).
• What is your business model, and how does it deliver value to your Customers and Investors.
• What sort of Partnership/Network/Leverage arrangements do you have in place to maximise your opportunities.

[3] Make Sure the Numbers Add Up

• Demonstrate a solid grasp of your business economics
• Provide long-term financial projections (ie: 2-3 years from now at least)
• Have a tight near-term operating plan (the current Calendar Year and/or Financial Year).
• Clearly capture your capital requirements, both in terms of $$$’s and what they’re for.
• Look to set up a capitalisation structure over multiple rounds, as this benefits Earlier Investors who’ve had to take a higher risk than Later Investors.
• Understand and Show your Levers of Profitability and Expense.
• Articulate the Key Business Metrics are, and how they will be Measured.

[4] Find the Right Investors

• Use (well …. prove) your sales and marketing skills in how you approach potential Investors.
• Actively generate momentum and interest in your business.
• Target your Investor contacts – go for the best ones first.
• Don’t flog your business pitch all around town … Once you’ve had 3 or more knock-backs then everybody gets to hear about it and has to assume your business is a “dog with fleas” and won’t return your calls.

[5] Build Credibility with your Potential Investors

• There are many factors that enhance/devalue your business. A number of them are covered in the following points.
• Who your Customers are (assuming you’ve got some).
• Who your Strategic Partners are.
• Who your current Investors are.
• Who your current Board members are (and you’d better have a Board in place).
• Who your Advisers and industry experts are.
• What your Milestones are for the next key achievements/targets within the business.
• How well you’ve been meeting your Milestones in the past 12 months.
• Being overly defensive about the business model, or the business results.
• Blaming others for the inability of the business to meet its Targets.
• Telling Lies that potential Investors can easily research (AND THEY WILL) to prove them untrue.

The Sorts of Entrepreneur Lies That Irritate and Turn Off Potential Investors

10. Our projections are conservative

9. Our target market is $56 billion

8. We have a world class team

7. Our average sales cycle is 90 days

6. We have no direct competition

5. No one else can do what we do

4. All we need is 2% of the market

3. We’ll be cash flow positive in 12 months

2. Our contract with Nokia will be signed next week

1. I’ll be happy to turn over the reins to a new CEO!

Some thoughts about your Business Plan – part 1.

I read a few hundred business plans a year, either on behalf of my business or on behalf of clients looking to acquire businesses.  Most of them are terrible !!!.

Here are some of my thoughts for business plan writers – wherever you are, and whoever you are – if you’re going to produce a plan that I have to read some time:

1.  Convert it to PDF.  I’m not interested in reading paper-based versions.  If I want to print it I will.  I like to travel light, and paper just clutters up my office and adds to the weight I travel with.
2.  Make it an appropriate font size.  Most readers of business plans will be over 30 and many will be over 40.  Therefore minimum font (point) size is 11, but 12 is preferred.  If you can’t fit your business plan into 20 pages without making it an 8pt font then you’re just not trying hard enough !!.
3.  Make it about the business, not the science.  I want to see target markets, channels, sales, costs, exit strategies, defensibility, scalability, and things like that.  I’m not going to read about your science – except for checking that it’s real and that you have the appropriate IP protection.
4.  Summarise well.  Make sure you hit the high points.  Don’t ever let me finish your business summary without knowing what you’re selling to what market, why they’ll buy it, what it does for them, how much money you think you need, how fast and to what sales level you can scale up, strengths, core competence, and a quick sense of your team.
5.  Tell me stories.  Make me understand what problems you solve, for whom, and how they find you.  Make that story credible.  Give me some real examples, real situations, real people, and make it believable.
6.  Show me milestones:  That is milestones you’ve achieved, and milestones you need to achieve.
7.  Don’t give me dumb profits.  If you’re going to generate margins at twice the average industry levels, then you better have a convincing reason for why that’s possible.  When I see huge profitability, it doesn’t make me think you’re going to be amazingly profitable; it makes me think you don’t know the business you’re in.
8.  Show me your patents if you have them but if you do, show me something about how defensible they are (if at all) and make sure your projections include legal expenses to defend them.
9.  Show me you know something about cash flow:  Inventory management if you have products, receivables and collection days.
10.  Think of your reader.  We don’t all have hundreds of plans to read, but whether it’s for angel investing, VC, Banks or Business Acquirers, Business Brokers we all do read more than just a handful.

Feel free to contact me if you need help getting your Business Plan into shape before you take that next step with your business.

Classic article about the new “Dark Empire” …. Apple.

The relevance of this blog entry is about the things that all businesses should learn in terms of:

• NOT alienating their customers;
• NOT treating their customers as stupid;
• LISTENING to their customers; and
• RESPONDING ADEQUATELY to their customers’ reasonable requests.

As you can guess, I’m an Apple customer – and a somewhat pissed off one when it comes to the iPhone, which could be a fantastic business tool, but instead is a good-looking but average business tool.

In essence the iPhone is a “Dumb Smartphone”.

Anyway, here is the article, with thanks to David Gewirtz @ ZDNet.  I particularly like the bit about Kim Il Jobs … very funny, but in the way that humour can get to the very heart of the matter.

Five lessons Apple can learn from Amazon

Yesterday, ZDNet’s own Jason Perlow wrote the Kindle’s epitaph, claiming April 3 (the date Apple faithful will start getting their iPads) marks the beginning of the end for the Kindle.

He may be right, in that the iPad has the Kindle (at least the high-end Kindle DX) beat on price and performance.  But does the iPad have the Kindle beat on a much more important factor: not alienating its customers?

LESSON 1:       Future-proofing your ebook purchases

Amazon’s Kindle started as a hardware delivery platform for Amazon ebooks.  But in recent years, it has become so much more.  According to Citi Investment Research, Amazon sold something like 35 million ebooks in 2009 and accounting for more than 80% of all ebook sales.

Amazon’s strategy has been the complete opposite of Apple’s.  Amazon realized that their product was really the books, not the book reader.  That old saw about selling the blades, not just the razor, holds true for the ebook market.  While still protecting their books through DRM, Amazon opened up the Kindle format, not by letting others write Kindle readers, but by porting the Kindle reader to other platforms.

Some of the different Kindle reader platforms

Today, you can read Kindle books on the iPhone, on your PC, Mac, laptop, or netbook, on your BlackBerry, and — unless Apple completely flakes out — on the iPad.  You can’t read Kindle books on Android yet, but since there’s no corporate-imposed friction in the process, we presume it’s a mere matter of programming before an Android-based Kindle reader becomes a reality.

By making Kindle software and all those Kindle books available for devices other than the Kindle hardware, Amazon has effectively future-proofed not only its distribution strategy, but the purchases of millions of their customers.

A Kindle book purchase is a safe purchase, because you know that even if you don’t read the book on a Kindle — or even if Amazon discontinues the hardware — you’ll still be able to read your book on other platforms.

The Kindle is one of the first cases where a centrally-controlled DRM-based product actually has some level of future-proofing.  When Wal-Mart initially decided to shut down their music service, millions of customers were told to either transfer their music to CD or lose it all.  When MSN and Yahoo! both decided to shutdown their DRM servers, customers screamed.

While all three services have since relented, and are keeping their servers online — at least for now — we can see a fatal flaw for DRM-based products.  The difference between these services and Amazon is that Amazon’s able to keep broadening its market by letting users choose where to read their books, while these other services limited access only to PCs and certain second- or third-tier hardware devices.

LESSON 2:       Competition as profit-center

Amazon has repeatedly shown it’s not only not afraid of competition, it’s found ways to co-opt its competition in ways that turns potential competitors into both partners and Amazon income streams.

Amazon’s Sellers program is a perfect example of this strategy.  Once Amazon’s management saw that there was a clear potential of losing new book sales to those reselling used books, Amazon added a used book market.

This was a smart move on its own, but rather than relegating that used book market to an unreachable corner of its Web site, Amazon instead integrated used book listings right into the main book listing for each title.

This not only gave consumers an at-the-point-of-purchase choice, but made it immediately and obviously clear to consumers that there was choice, and reduced the reasons customers might have for ever looking for books anywhere other than on Amazon.

Today, if you look up any given book title on Amazon, you can find new books sold by Amazon, new books sold by other retailers or individuals, Kindle books, and used books — all in one place.  As a consumer, it’s clear that there’s a wide range of choices and it’s also clear Amazon is willing to celebrate consumers’ choice.

LESSON 3:       Kim Il Jobs

This is the complete opposite of Apple’s approach to everything except music.  If you buy an iPhone, there are certain apps you can’t run because they “duplicate functionality,” they’re violating some term of use or another, they’re too racy, or the moon isn’t in some predetermined, but unspecified phase.

When it comes to music, Apple seems to be open to pretty much anything, including songs with highly inappropriate lyrics.  And here’s another place where Apple could learn something from Amazon.  Amazon is relatively predictable.  You can pretty much assume Amazon will generally make sense in its strategies and communicate them to its partners and customers.

But Apple isn’t like that.  As Perlow says, Apple is pretty much like North Korea.  It seems to be run by a relatively unhinged leader, everything is shrouded in darkness, and very little useful information leaks past its borders.

The iPad has the potential of being a unifying device, the one device that will display books in all formats, display most media, and provide a lightweight window to view the digital world.

But because of the fact that Apple both refuses to open up (Flash, anyone?) and because Apple claims to have the right to restrict all content on its device, the iPad can’t be trusted.

Will Apple censor what you can read on your iPad?  Will Apple retroactively remove things you like to use on your iPad.  I had a very handy WiFi scanner on my iPhone that I used for identifying dead zones on my network.  One day after an iPhone update, the program was no longer on my phone — because Apple deemed WiFi scanner programs as having “mimimum functionality.”

I’d paid for that program, but I no longer had access to it — and Apple refused to refund the measly two bucks I paid because it was a purchase over 30 days old.  That program had exactly the mimimum functionality I wanted for my $2, but because Apple decided it was going to be the judge of what software I was allowed to use, I had to resort to other tools for network testing.

To be fair, Amazon pulled this stunt with a copy of 1984 (of all things).  But unlike Apple, as soon as Amazon became aware of how grossly stupid it was to yank a book off Kindles (and the delicious irony of it being 1984), Jeff Bezos came out with an apology and made an explicit promise not to do it again.

Can you imagine Steve Jobs doing that?

LESSON 4:       Readers are collectors

Most avid readers have huge collections of books.  Part of their pride is showing their book collections and being able to touch and feel those books.  Collections are translating to the digital world, and it’s likely that most readers will gravitate toward one or two large “libraries” for their books, not a fractured set of DRM-limited books provided by many providers.

Kindle may well be the library of choice.  With 35 million books sold last year alone, there are a lot of Kindle libraries.  I just checked my Kindle library and I have 35 books in it — and I don’t own a Kindle (I did, though it sucked, and returned it).  Instead, I read Kindle books on my iPhone.

Collectors may also gravitate towards whatever the iBooks library becomes.  While you can almost definitely be assured that you’ll be allowed to read whatever you want in your Kindle library (if not on the iPad, at least on other devices), there’s absolutely no promise that (a) you can read what you want in iBooks, and (b) those books won’t be censored or edited in some way to meet Apple’s bizarre requirements.

LESSON 5:       Five BIG lessons that Apple can learn from Amazon

Here are five important lessons Apple can learn from Amazon:

1. Don’t be afraid of your competition, co-opt them and profit from them instead.
2. Don’t restrict what your customers can buy.
3. Don’t restrict how and where your customers can use what they buy from you.
4. Be predictable and set clear guidelines for how you’re going to behave.
5. If you make a boneheaded mistake, apologize and then explain what your policy will be into the future.

This issue is bigger than just Apple and Amazon.  As more and more of our information goes digital, as the books we read become digital, as the news we get comes in digital form, as magazines, radio, and TV are all distributed digitally, there exists the potential for information control.

Once these companies start to exert control over what we can and can’t watch, what we can and can’t read, once they start attempting to dictate what we can and can’t think, this becomes an issue of civil rights, and far more than just an issue of distribution and DRM.

Think about it.  While you still can !!!.

Is your biggest asset (your data) safe ?.

These days our PCs and Servers are much more than just computers, they’re our life – both business and personal.

Most of, if not all, the important information in our life is now stored electronically on a computer.  Whether it’s those precious family photos/videos, that music collection or critical business documents and financial records, everything is digital.

Hardware failure, viruses, fire, theft, a power surge, or even a disgruntled employee and you could be left with all of your data gone forever.

The possibilities of how it can happen are endless (trust me I’ve seen most of them) and there is only one thing you can guarantee when it comes to technology – all hard drives will fail, often without any warning whatsoever.

Here are some of the statistics, and factoids, relating to the topic of data loss/backup/recovery:

• 99% of all businesses out there DO NOT carry out a daily backup (yes … this includes YOU).
• 60% of all data backups taken are incomplete, or have some level of data corruption.
• 1 out of every 10 hard drives fails in the FIRST YEAR.
• Only 3 out of every 100 lost/stolen computers are ever recovered.
• Over 25 Million computers are lost/stolen every year around the world.
• DAT tapes have a restore success rate of UNDER 50% over the life of the tape.
• 50% of all conventional restore processes fail.
• 70% of businesses that suffer a major data loss go out of business within 18 months.
• Onsite backups offer ZERO PROTECTION from FIRE, FLOOD, VIRUS and THEFT.
• A 2009 business survey concluded that every MB of data in your systems is worth $10,000.
• Company directors can go to jail for breaches in data protection/privacy laws.

That’s the bad news.

The good news is that it’s simple to address.  I can tell you what I use for my business – which is Data Vault Security (www.datavaultsecurity.com) – but first why do I use them:

• They use Military grade (256-bit) encryption to keep my data as secure as possible.
• They compress the data before sending it across the wire, minimising storage/bandwidth/time.
• The data is stored at Data Vault Security in encrypted form – so it is totally secure even if somebody managed to hack into their data centres.
• The Backup/Restore client does not lose connection if the line drops out (dynamic resume);
• There is no size limit, so my requirements can grow as my business grows without additional equipment.
• I can create up to 150 different Backup Sets, each of which can have a different backup frequency (eg: Emails daily, Database logs hourly, Picture libraries weekly) at no additional cost.
• They are the only backup/restore providers to offer a A$3M restore guarantee if for some reason I cannot get my data back – NOBODY ELSE OFFERS THIS, they barely give any undertakings when it comes to getting your data back.
• They use a 3-way disk mirror rather than the traditional 2-way disk mirror for additional redundancy, to better protect my data.
• They keep copies of my data in at least 2 separate data centres at once, for additional reliability in restoring my data (WHEN I NEED IT).

This is the link that can be used by a business/individual who wants to request the trial themselves http://www.datavaultsecurity.com/index.php?act=scaleSurvey If you check this out, the relevant Reseller Guest Code is TS8113 which is the code that lets Data Vault Security know the referral came from my business.

This is the link that can be used by a business user who wants to start using the Data Vault Security service straight away http://www.datavaultsecurity.com/index.php?act=viewCat&catId=3 If you check this out, the relevant Reseller Guest Code is TS8113 which is the code that lets Data Vault Security know the referral came from my business.

This is the link that can be used by a home (domestic) user who wants to start using the Data Vault Security service straight away http://www.datavaultsecurity.com/index.php?act=viewCat&catId=4 If you check this out, the relevant Reseller Guest Code is TS8113 which is the code that lets Data Vault Security know the referral came from my business.

What are the “real” growth sectors at the moment ?.

I regularly get this topic tossed at me in meetings … namely “what sectors are the sectors to look at investing in to get the best growth prospects in CY 2010”.

Since I get asked it often enough I’ve created this entry and I can point people to it in future rather than “playing the broken record” again.

Feel free to pick and choose from this list in terms of those sectors you prefer, or are well-versed in.

Growth sectors

RECRUITMENT:  Having been massacred in 2008 and the H1 of 2009, recruiters started making positive inroads during Q4 of 2009 and now into Q1 of 2010.

The smart recruiters got into Outplacement to stop the revenue bleeding in 2008/09 (and service what their clients wanted most often).  Outplacement is still relevant in 2010, but now it is not about shedding staff “that we can’t afford” rather it is about M&A activity and typically 2 people (one from each company) in 1 position (in the merged business) doesn’t go.

The demand for Senior Executives, ICT Specialists and Financial Services specialists is seen as being a strong driver for recruitment growth in 2010.  The growth is being driven by both Contract and Permanent staffing requirements in 2010, whereas it was predominantly from Contract staffing requirements in 2009.

NETBOOKs:  Primarily used for web-browsing and email, Netbooks will see continued strong growth in 2010 and beyond.  The introduction of Intel Atom processor in 2008 spurred the growth of netbooks.  This category is still in a formative stage with size, features and relative performance levels in a state of flux.

However, with the anticipated introduction of the Chrome operating system by Google this category will experience strong demand on the back of Google’s marketing campaign.  For those not familiar … the Chrome o/s promises Netbook users will have an instant TV-like experience for bootup and make web-browsing and emailing far simpler than current PC’s and Mac’s.

SMART PHONEs:  Smart phones grew in 2009 and are expected to grow even further in 2010 as manufacturers and operators seek to drive open platforms into mass market.  The strongest demand is expected to be iPhone, Blackberry and the Android based phones such as one from Motorola.  The smart phone market has entered a period that presents enormous growth opportunities for many key players including semiconductor vendors, platform providers, Telco’s, device manufacturers and software developers.

You just need to observe the growth in iPhone apps – currently over 195,000 applications and it has grown by 20,000 in just the Feb/Mar months of 2010.

CLEANTECH:  As the global economy pulls out of a deep recession, the job market is changing with information technology and clean technology gaining speed.

I’ve already covered some IT areas above, so now touching in CleanTech there are a couple of really solid growth areas:

• Water;
• Renewable Energy; and
• Waste Processing.

An interesting development at the bigger corporate end of town is the emergence of the “Chief Sustainability Officer” – in effect the new Environmental Chief at big firms.

In Australia the major push for corporations to become more green has been in place since around 2005, with most of the large corporates provide a separate Environment Impact Statement along with their Annual Report.

In the next 5 years the demand for a CSO will dramatically accelerate as companies will need a CSO who is accountable to both the owner and share holders.

SUGAR: While the past 5 years have seen the sugar manufacturing industry buffeted by the highs and lows of global demand, supply trends and world prices, 2010 is shaping up as seeing Australia’s sugar manufacturing industry positioned as the biggest grower for the 2010 calendar year increasing by between 15% to 20% a massive increase.

ORGANIC FARMING: Demand for organic products in Australia and around the world has risen in recent years as consumers increasingly consider the health benefits and environmental impact of their food choices.  The industry is projected to exceed $425 million in 2010, representing better than 10% growth from 2009, and employment is expected to grow by between 2% and 4%.

OIL & GAS PRODUCTION: Although most analysts predict oil production will decline in 2010, this will be more than offset by a rise in natural gas production, seeing the sector post close to 15% growth in 2010 (to nearly $40 billion) – and generating close to a 4% increase in employment.

INSTITUTIONAL BUILDING CONSTRUCTION: Centred on the construction of buildings where Australians learn, work, are healed, socialise, exercise, pray and seek justice, the Institutional Building Construction industry is expected to grow by 12% in 2010 to nearly $10 billion, strongly supported by increased government spending – especially on educational structures.

HEALTH INSURANCE: Despite a rise in Medicare levy surcharge thresholds, many predict 2010 will see an increasing number of Australians take out private heath cover.  This, combined with a rebound in investment income for insurers, will see the industry post growth of 10% to nearly $15 billion 2010, while employment is expected to experience slight growth at 0.6%.

There are several factors leading more Australian’s to take out private health insurance, including rising incomes, tax advantages, an ageing population, plus rising waiting lists for elective surgery and essential surgery in the public health system.

ALTERNATIVE HEALTH THERAPIES: A growing acceptance of alternative therapies and more holistic approaches to health has seen alternative health therapies increase in popularity in recent years, with an estimate seeing the sector experiencing growth of 5% in 2010 to total over $3 billion.  This will be matched by an increase in employment within Australia of between 4% to 5%, which is a significant employment growth for any sector in 2010.

ONLINE SHOPPING: As access to technology improves, and our overall skill in using it grows, many trend watchers are forecasting time-poor bargain hunters will continue to flock to e-tailers to meet their shopping needs.  Improvements in online store usability, efficiency, reliability and security are expected to drive growth of nearly 5% in 2010 to reach $20 billion – with a resulting increase of 3% in employment.

Within Australia, online sales currently represent just 5.5% of all retail sales, well below levels in the US and UK, leaving room for significant growth over the next few years.  Current lower levels are partially due to the fact that Australian retailers have been slow to offer online sales.

WEIGHT LOSS SERVICES: In one of those very funny ironies … losing weight will grow by almost 5% in 2010 to be worth more than $750 million, generating almost a 3% increase in employment. The sector is expected to continue to grow in 2011, as rising obesity rates and growing public awareness of subsequent health issues lead more Australians to invest in weight loss.

The increasing availability of weight loss drugs and supplements, as well as growing acceptance of surgery as a treatment – such as lap-bands – will see more Australians invest in weight loss treatments in the coming years.

BABY PRODUCTS: Over the last 5 years there has been strong growth in high-end baby products, as first-time parents in their late-30s and 40s buy up big for their newborns – seeing the sector forecast to grow by over 3% to more than $4 billion in 2010, generating a 3% increase in employment.

Key areas of growth include premium kids clothing, with celebrated fashion designers such as Collette Dinnigan and Fiona Scanlan launching children’s lines, as well as the continued expansion of ‘mini me’ branding and the booming “cottage industries” being supported by their own version of eBay (eg: Etsy).

“Not Growth” sectors

Since we’re on the topic – how about some of the “others” for 2010, ie: the sectors that are not going to grow, and in fact are most likely to be big losers in 2010.

IMAGE PROCESSING & PRINTING SERVICES: The digital revolution and the advent of digital cameras, home photo printing equipment, digital photo frames, and electronic storage of images has led to the image processing and printing services sector suffering significant losses, with revenue forecast to fall by another 6% in 2010 to under $550 million.  Corresponding to the fall in revenue, the number of jobs is expected to fall by nearly 4%.

MULTI-UNIT APARTMENT & TOWNHOUSE CONSTRUCTION: Whilst this seems a bit counter-intuitive, and despite a shift in lifestyle and residential preferences toward higher density housing, it is expected that multi-unit apartment and townhouse construction will contract sharply in the coming year, falling by over 5% in 2010 to $6.6 billion – with employment dropping by nearly 4%.

Reduced access to credit for developers, rising interest rates and a reduction in the first home buyers grant will be the main contributors to the downturn.

WIRED TELECOMMUNICATIONS CARRIERS: In 2010 the number of consumers switching from wired to unwired services is expected to increase and accelerate, resulting in a fall of nearly 5% in 2010 to $12 billion for wired telecommunications carriers.

Consumers are increasingly opting for un-wired options as they allow cost saving benefits such as removing line rental expenses, resulting in a decrease in revenue and drop of over 3% in employment.

VIDEO HIRE OUTLETS: Increasing electronic distribution of video content and a greater volume of both pay and free-to-air television programming has resulted in a long-term downward trend for video hire outlets.  In 2010, the industry’s revenue is expected to decrease by nearly 4% down to around $520 million, and the number of jobs in the sector is expected to fall by between 1% and 2%.

TRAVEL AGENCY SERVICES: Most analysts predict another poor year for travel agents following a further decline in international tourism and the rapid growth in online booking sites.  Revenue is tipped to contract by about 2% in 2010 to $2.7 billion, while employment will fall between 1% and 2%.

Receivables Management for managing Business Cashflow.

I’ve talked with many businesses over the years about the benefits of Receivables Management as a tool to leverage cashflows.  Receivables Management is also known as “Debtor Finance” and more commonly as “Factoring”, which is a particular form of Receivables Management.

You can learn a little bit more about the basics of Debtor Financing at http://en.wikipedia.org/wiki/Debtor_finance which may answer some basic questions that I don’t address here.

Please feel free to contact me if you want more information on this topic, or want help accessing Debtor Financing as an option for your business.

As I mentioned, a term used to mean Debtor Financing or Receivables Management is Factoring.  This still has a dirty name for many people who remember the ridiculous interest rates businesses were being charged to access this type of facility back in the 1980’s and 1990’s.

Rest assured that in todays financial markets Debtor Financing is much more cost effective for businesses.  Typically the cost to a business is 200-250 basis points (2.0%-2.5%) above the benchmark lending rates.

So, why would you use Debtor Financing ?.  Well, the most obvious answers are:

• You’ve issued an invoice to a customer and now have to wait 30/45/60/90 days until you get those funds.
• If your customers are late paying, or go delinquent, you will wait even longer.
• If you could get 70% of the money due in 30 days today, and only pay 6.5% for the privilege what sort of a return to the business can you make ?.  If it is less than 6.5% then you shouldn’t be in business … it should be more like 20% to 50%.

PLEASE NOTE: The banks don’t just give this away for nothing.  They will do an assessment of the Invoices you are proposing to use and will decide which ones they will accept (or not accept).

In the Australian marketplace there used to be a number of financial institutions offering Debtor Financing, with ANZ and NAB being the top 2 with very attractive offerings.

Unfortunately as at the end of 2009, ANZ withdrew from this market for new business customers.  However, NAB are still in this market and have over a 50% market share.

This means that:

• They’re committed to Debtor Financing as a tool for their business customers;
• The NAB Business Bankers understand how this tool can be made to work for their customers; and
• When they approve of an Invoice you want to use for Debtor Financing that means they’re willing to work with you in risk-managing those Accounts Receivable.

Here is a link to the NAB Debtor Financing facility in case you would like to know more http://www.nab.com.au/wps/wcm/connect/nab/nab/home/business_solutions/3/1/2

I’ve provided a small précis below.

NAB Debtor Financing:

Suited to businesses that need a capital injection to fund business growth, or cash flow requirements, but want to fund this purely on the strength of their business sales.

What are the Benefits:

• Funds access: borrow money based on the strength of your business sales
• Flexibility: helping you manage seasonal and day-to-day fluctuations in cash flow
• Convenience: ability to gain access to funds when you need it against issued invoices.
• Limit: as your business grows and your debtors grow so does your facility
• Accessibility:   transfer funds from your NAB Debtor Finance account into your working account via NAB Online Business and NAB Online Corporate, or by written instruction

What are the Features:

• Credit limit based on business sales, not mortgage based fixed asset lending like all the other options available to businesses
• Withdrawals can be made from your NAB Debtor Finance account up to your daily available limit (which automatically increases/decreases depending on the level of your sales and debtor collections).
• No account keeping fee
• No line service fee

Is Project Management dead, or just on life-support ?.

This is a topic of personal interest to me, firstly because I’ve been a project manager in the past (for many years) and hold international accreditation as a project manager (called PMP … Project Management Professional).

The reason for this blog entry is that there has been a steady rise over the past 2 years of the “be all” project manager … partly due to the GFC (ie: cut back on staff numbers be still have the same amount of work to do).

If you look on the job websites (Seek, MyCareer ..etc) you will commonly see something along the lines of “Seeking Project Manager, with 5 years experience plus experience in Agile and must be able to write C# code”.   A few years ago this would have been derided as being (rightly) ridiculous – how can you expect a PM to also be doing “the doing” at the same time and not drop the ball in being the project manager ?.

Part of the reason – or blame – for this is the Project Management Institute which has for many years been trying to establish the validity of Project Management as a profession in its own right, not just a type of job and a role on projects.

Sadly, PMI has been singularly unsuccessful in convincing senior business executives about it’s cause and due to GFC that cause has been further undermined by the “do more with less” attitude of business executives in response to a significantly weakened global economy.

So, in 2010 the actual nature of project management is being influenced by a few factors (I’ve listed some, but this is not an exhaustive list):

• The significant reduction in large projects being initiated, which are being replaced by a number of smaller (more nimble) projects that deliver results and benefits much quicker.
• The rise of Agile into a viable means of delivering change in a corporate environment, rather than just on the “lunatic fringe”.
• The trend towards business people being generally more aware of their work environments and the actions being taken to change those work environments (be it business process, technology or something else).
• The massive increase in the pervasiveness of technology into the entire business these days, which makes change happen faster and more often (sometimes more easily but not always).
• The active ownership of change projects being driven from the business side rather than the technical side.
• The large-scale adoption of a “matrix model” for reporting lines within organisations, rather than the traditional hierarchies.
• The implementation of “lean processes”, taken from six-sigma and other repeatable process methodologies, which was in vogue for tier 1 and tier 2 businesses from 2004/05 through to the GFC.

Where does that leave project management, and project managers now ?.

Clearly, there is still a need for high-quality very experienced project managers for complicated change initiatives.  That requirement will never disappear, but it will become less of a focus in future.

The sorts of trends I see for project managers are:

[1]  The rise of the Team Leader as not just a de facto Project Manager, but as the preferred choice for overseeing change.

[2]  The rise of the Business Portfolio Manager, who is the coordinating point within the business who pull the strings that drive all the change projects (and their Team Leaders) in whatever direction is appropriate during any given period.

[3]  The continued rise of Agile Methods as a means to quickly deliver organisational change – both technology and business process – such that selecting a “traditional” project management approach becomes an eyebrow-raising event requiring the Business Portfolio Manager to wade in and seek an answer for that choice.

These are just some thoughts and ramblings, some of which I can support with hard evidence but some of which I can only observe the early signs and make my own guesses on.

Back in 2009, my business took an investment stake in a recruitment business, one of the reasons for doing that is I saw 2010 as being the “year of the recruiter” as the economy started to bounce back and businesses had to hire back in skills to take advantage of the economic opportunities that you only get once every upturn/downturn cycle.

So, part of the evidence I can cite is the sorts of requests being placed at the doors of the recruitment firm I’m an investor in.  These requests when it comes to project managers encompasses (in order of priority):

1. Agile.
2. Technology-capable (in some particular technology set).
3. Business-capable (can engage the business people in their language).
4. Strong stakeholder management skills.
5. Good communicator.
6. Able to manage Scope/Budgets/Issues/People/Time.

If I were a “traditional” project manager out there I’d be worried about now that I might soon be a dinosaur.

I’m genuinely interested in other people’s thoughts on this topic, because of my investments into the Recruitment game .  Feel free to comment.

What is a Convertible Note ?.

When I talk with businesses the topic of funding is usually the first-cab-off-the-rank.

One of the most effective ways to raise the funds in the post-GFC world is through Convertible Notes.  When I talk about this, the first reaction from most people is “what is a Convertible Note ?”.

So, to stop that little record being played over and over, I now point people to this Blog entry.

Feel free to contact me if this is a topic of interest to you for your business, or you just want to know more about the topic.

A convertible note (or, if it has a maturity of greater than 10 years, a convertible debenture) is a type of bond that the holder (Investor/Bank) can convert into:

• Shares in the Company they’ve put the money into, at an agreed value (per share); or
• Cash, of equal value to the money they’ve put into the Company.

Either way, the Investor will receive interest payments on the way through at an agreed-upon annual interest rate and at agreed-upon frequencies.

In terms of exercising a choice (Shares, or give me my Cash back), this is the Investor’s choice and the Company must accept that choice whether it is convenient and whether they like it or not.

The types of frequencies I most often see are:

• Quarterly in arrears;
• Half-yearly in arrears;
• 50:50 (50% up-front, and 50% at the agreed end-date);

Each type of frequency has a different risk profile for both the Investor and the Company, and therefore the rate of Interest is expected to be quite different because of the risk spectrum.

A convertible note is a hybrid security with both debt and equity features.

The Investor receives the potential upside of conversion into equity, at an agreed price today for some point in the future, while protecting their downside with cash-flow from the “convertible note” payments.

From the Company’s perspective, the key benefit of raising money by selling convertible notes is (hopefully) a faster approval timeframe than a bank can achieve plus a deferral of dilution of all the other shareholders (though it will be inevitable if the Company does very well).

In the present Australian market, private convertible note arrangements vary from a duration of 6 months to 5 years and vary from an interest rate of 10% to over 20%.  The massive difference in interest rates relates to the frequency of interest payments and the risk-levels that the Investor perceives the Company as being for them to get their entire capital back.

What are the “Jobs of the Future” ?.

My thanks to Rohit Talwar at Fast Future (www.fastfuture.com) for these insights, which he provided to me in February of 2010.

You will notice these jobs are all derived from current/emerging technologies, and every single role would be foreign to business managers from even 20 years ago …. even if they could guess what the role actually entails.

Feel free to contact me, if you want further information.  Also feel free to post comments here.

The shape of jobs to come list of 20 jobs

1.    Body part maker Advances in science will make the creation of body parts possible, requiring body part makers, body part stores and body part repair shops.

2.    Nano-medic Advances in nanotechnology offer the potential for a range of sub-atomic ‘nanoscale’ devices, inserts and procedures that could transform personal healthcare. A new range of nano-medicine specialists will be required to administer these treatments.

3.    ‘Pharmer’ of genetically engineered crops and livestock New-age farmers could be raising crops and livestock that have been genetically engineered to improve yields and produce therapeutic proteins. Possibilities include a vaccine-carrying tomato and therapeutic milk from cows, sheep and goats.

4.    Old age wellness manager/consultant Specialists will draw on a range of medical, pharmaceutical, prosthetic, psychiatric, natural and fitness solutions to help manage the various health and personal needs of the ageing population.

5.    Memory augmentation surgeon Surgeons will add extra memory capacity to people who want to increase their memory capacity. They will also help those who have been over-exposed to information in the course of their life and simply can no longer take on any more information thus leading to sensory shutdown.

6.    ‘New science’ ethicist As scientific advances accelerate in new and emerging fields such as cloning, proteomics and nanotechnology, a new breed of ethicist may be required, who understands a range of underlying scientific fields and helps society make consistent choices about what developments to allow. Much of science will not be a question of can we, but should we.

7.    Space pilots, tour guides and architects With Virgin Galactic and others pioneering space tourism, space trained pilots and tour guides will be needed, as well as designers to enable the habitation of space and other planets. Current projects at SICSA (University of Houston) include a greenhouse on Mars, lunar outposts and space exploration vehicles.

8.    Vertical farmers There is growing interest in the concept of city-based vertical farms, with hydroponically-fed food being grown in multi-storey buildings. These offer the potential to dramatically increase farm yield and reduce environmental degradation. The managers of such entities will require expertise in a range of scientific disciplines, as well as engineering and commerce.

9.    Climate change reversal specialist As the threats and impacts of climate change increase, a new breed of engineer-scientists will be required to help reduce or reverse the effects of climate change on particular locations. They will need to apply multi-disciplinary solutions ranging from filling the oceans with iron filings, to erecting giant umbrellas that deflect the sun’s rays.

10.  Quarantine enforcer If a deadly virus starts spreading rapidly, few countries, and few people, will be prepared. Nurses will be in short supply. Moreover, as mortality rates rise, and neighbourhoods are shut down, someone will have to guard the gates.

11.  Weather modification police The act of seeding clouds to create rain is already happening in some parts of the world, and is altering weather patterns thousands of miles away. Weather modification police will need to control and monitor who is allowed to shoot rockets containing silver iodine into the air – a way to provoke rainfall from passing clouds.

12.  Virtual lawyer As more and more of our daily life goes online, specialists will be required to resolve legal disputes which could involve citizens resident in different legal jurisdictions.

13.  Avatar manager / Devotees Virtual teacher Avatars could be used to support or even replace teachers in the elementary classroom, for instance, as computer personas that serve as personal interactive guides. The Devotee is the human that makes sure that the Avatar and the student are properly matched and engaged, etc.

14.  Alternative vehicle developers Designers and builders will create the next generation of vehicle transport using alternative materials and fuels. Could the dream of underwater and flying cars become a reality within the next two decades?

15.  Narrowcasters As broadcasting media becomes increasingly personalised, roles will emerge for specialists working with content providers and advertisers to create content tailored to individual needs. While mass market customisation solutions may be automated, premium rate narrowcasting could be performed by humans.

16.  Waste data handler Specialists will provide a secure data disposal service for those who do not want to be tracked, electronically or otherwise.

17.  Virtual clutter organiser Specialists will help us organise our electronic lives. Clutter management would include effective handling of email, ensuring orderly storage of data, management of electronic IDs and rationalising the applications we use.

18.  Time broker / Time bank trader Alternative currencies will evolve their own markets – for example time banking already exists.

19.  Social ‘networking’ worker Social workers will help those in some way traumatised or marginalised by social networking.

20.  Personal branders An extension of the role played by executive coaches giving advice on how to create a personal ‘brand’ using social and other media. What personality are you projecting via your blog, Twitter, etc? What personal values do you want to build into your image – and is your image consistent with your real life persona and your goals?

What is your Business Idea worth ?.

I get approached by inventors, and other people with interesting ideas, and the one question I get asked in these situations is “what is my idea worth ?”.

There are so many ways to say “Zero” as the immediate response, but let’s delve into why your business idea is – or is not – worth anything.

Why your business idea is not worth anything.

[1]        Is it a better, faster, toaster ??.

Because if it is – yes it probably has some value, but the next (even) better, faster, toaster is just around the corner.

Therefore, your window of opportunity to leverage value from your idea is very small, and sophisticated investors know this.  These investors would rather chew their own arm off if that’s what it takes to get away from you when you accost them at some function and start trying to convince them about your idea.

[2]        Have you tried to patent it ??.

If you have, at least you will soon know that answer as to whether your idea is original or derivative of an already existing patent.

If you haven’t … the first question an investor is going to ask is “why not ?”.  The implication being that if you don’t believe in your idea enough to spend the $$$’s to get a patent application then why should they spend the $$$’s.

[3]        This could be worth MILLIONS !!.

Yes it could be, but using Amazon/Google/Facebook/Skype/…etc as an example for your business idea just will not cut it.  Only 1 out of every 200,000 ideas will get even remotely close to something like this …. And why is your idea that 1 ?.

An investor would be better buying a lottery ticket than investing in your business idea with those sorts of odds.

Why your business idea MIGHT be worth something.

[1]        It is a BIG Idea.

This may seem obvious, but bear with me.

Why start a company that you want to turn into an emerging growth company if it is not based on a big idea?

In spite of this almost every day aspiring entrepreneurs are out there pitching ideas that are just obviously not big.  At best it might be a great feature for another product (and that has tangible value for an investor).

Maybe it is a niche product that people would pay for, but there aren’t that many people in the niche.

For serious investors who deal in early-stage businesses they need businesses with BIG IDEAS and HUGE POTENTIAL.

…

Why ?.

…

Because they need to see returns of not 3x or even 10x, but 30x or more-like 50x.

This is because out of every 10 early-stage investments, these investors anticipate that only 1 to 3 will be successful.

If your idea is just a feature or a niche product, I’m guessing it is worth whatever you can license it to somebody else (who can do it much better than you) for – it is probably not a truly investable proposition.

Don’t get too down in the mouth though, many worthy ideas make good money for their creators in just this fashion – in the software/hardware game OEM’s, Plug-In’s and other types of “features” are regularly licensed from one company to another and the company licensing it can make very good annuity income.

[2]        You Have Prove That You’re Not Just Making it Up.

Having a business idea is all fine and dandy, but can you prove that it works?

Investors in 2010 are just not investing in 2 people with an idea sketched out on the back-of-an-envelope.  They need objective data that points to how this idea can – and will – make money.

Now, this doesn’t mean that they need to see profitability or even revenues (not right now anyway).  But it does mean that they want to see that you have something that people are interested in using.

Some examples of this objective data:

• Can you show adoption rates ?
• Can you show a nice upward trend in hits to the website ?
• Can you show a sustained upward trend in new users/subscribers ?
• What are your retention rates for users/subscribers ?
• Do you already have your patent approved ?

[3]        You Can Justify A Valuation That Has No Rational Relationship To Your Earnings Power.

This is related to the “big idea” requirement, but is more subtle.

In essence … “what is your secret ingredient”:

• Is it a hot new technology?
• Is it a rock star team?
• Is it a revolutionary new business model?
• Is it a ground-breaking mathematical algorithm ?
• Is it a new way of solving a commonly-experienced problem ?

Basically, it is about how you can justify to a buyer that they should pay 12x or 18x EBITDA, but your competitors are selling for 6x or 7x EBITDA.  This is particularly crucial in those instances when you’re claiming an EBITDA that doesn’t exist yet (ie: purely forecasts, because you haven’t even earned a single dollar).

Feel free to contact me if you’re facing these sorts of challenges.