Business Angel Blog

As any regular follower of my blog will know, I love Economics, and feel that an understanding of the subject can help business owners make better decisions. The Macro environment is very important in considering even what appear to be small business decisions.

However, a tweet (you can follow me on @permjotvalia) I read suggested that the very difficult pricing model of airlines could be solved by more competition. I disagreed with that and would hope to use this blog to demonstrate how in many cases, more competition can leave consumers worse off.

If anything, airlines are one of the best examples of learning from economic principles. They are great at explaining the issue of marginal revenue. (Even if ALL costs are not covered, it is always worth doing something providing marginal cost + $1 is earned). So even if a flight is making a loss, it is worth flying providing the costs of actually flying (petrol, food etc) are covered. That is because the fixed costs are going to be huge; that is wages (fixed), landing fees (fixed) and aircraft costs (fixed).

Travel is also one of the few markets that allows producers to practice perfect price discrimination. They are able to price each seat differently depending on how much the traveller needs that ticket. So if you buy a ticket for tomorrow that will be more expensive than in a months time. Just before Christmas will be more expensive than January. And my pet hate, if you do not stay over on a Saturday night, the return flight can be very expensive (as they can use this to discriminate between business travellers and leisure travellers).

But the airline industry is also very odd in that it is very heavy regulated. You would have to get rid of some these regulations to ensure that there could be more competition. One of the reasons Ryanair prefers pilots to hold Irish licences rather than UK ones is that they can fly an extra couple of hours a week because of that. How would we as consumers feel if the UK upped the limit from around 32 hours a week to say 60? It may lead to lower prices but is that what we would want.

And what about the fixed landing slots regime. In a truly competitive market each and every slot could be up for negotiation. If it got to the stage where all the fixed costs were made flexible, flights could literally decide 24 hours before they were due to take off if it was worth making the flight or not. Although its opaque pricing structure is very annoying, it is also the best guarantee we have that these flights will indeed take place.
So, more competition and flexibility is not always the answer.

Another great example is Premier League Football. Until recently, Sky had a monopoly on live matches. Because of EU intervention, other operators have had to have matches offered to them. This sounds great, but the consumer is a lot worse off as they now have to subscribe to multiple pay for view TV operators.

It seems most people like meeting people in business for the sake of meeting. One of the curious things I noticed about the most effective sales people was that their ability was all to do with their tenacity in following up and ensuring that action points agreed were carried out. Other sales people with ‘personality’ and ‘charisma’ were great at the initial bit but not on actually getting things done. This has interesting parallels with entrepreneurs.

I meet with many people on a regular basis who say that they are not very good at networking. I found that strange as many of these people have great social skills – and then I realised that what they were really saying is that they find it hard to build relationships and manage relationships.

To me there is nothing more frustrating than having a good meeting with someone and feeling there is going to be something there – and then there is no follow up or actions promised.

You need to always remember that it is a small world (I have stopped getting freaked out by the incidents that remind me of that) and that every time you interact with someone there is likelihood that you will probably come across them again in a different context – or that your name may come up in a conversation with them and they will offer an opinion. Question is what opinion do you want them to offer?
And yet it is all so easy. We too easily manage people on a transactional basis rather than on a long term relationship building basis. I come across many people who I do feel are just wanting to ‘use me’. There is nothing wrong with meeting people with an objective in mind; but you should try and make the person feel good about helping you.

I have to be honest and say that I struggle to see why people struggle with this. Why not simply treat people as you would like to be treated yourself? And that creates a virtuous circle where favours kept getting passed on.

As an aside, I was talking with a journalist a couple of weeks ago and he was bemoaning the nickel and dime culture here in the UK compared to the US. He felt that Angels/ Advisors in the UK were too focused on their own rewards to really help entrepreneurs. I surprised him when I said that it works both ways. In Canada (and Cape Town) there is much more of a reciprocal relationship between advisers and companies. If I do a good job with a company there, I am often given an options package, asked to join the board and nine out of ten times at least paid something. In my experience, in the UK, despite helping lots of companies, no one has offered anything in return. Only one company has ever sent me something unprompted. I guess this is a cultural difference rather than a statement about the spirit of people.
And yet this still comes down to relationship management. It should never feel like a one sided relationship.

And if you are thinking of how to say thank you – its my Birthday on Thursday!

Overcoming Your Fear of Failure

If you want to start a small business but aren’t sure where to begin simply because you’re afraid of failing, you’re certainly not alone. Many small business owners – or potential small business owners – miss out on the opportunity of a lifetime for starting a small business simply because they’re afraid of failure.

Luckily, Daniela Baker from CreditDonkey shares a few steps you can take to help you overcome this fear of failure and get your small business off the ground. Here are a few ways you can start to overcome your fear of failure today:

Discover the cost of inaction

If you’ve been dreaming of starting a small business, there have to be some strong motivating forces behind that dream. Do you want to be your own boss? Do you want to provide your family with more financial freedom and security? Do you simply want to do what you love and love what you do? Consider the reasons that you want to start your own small business, and then consider what it will cost you to not even try. While failure could be costly, inaction could be even more so!

Do plenty of research, and come up with a plan

Before you can even consider starting a small business, you need to come up with a plan. This involves hours’ worth of research into your market, your type of business, your financing options, and many more things. The more research you do, the better your business plan can be. With a better business plan, you’ll feel more prepared and will be less likely to fear failure.

Come up with a backup plan

It’s always a good idea to start off with a backup plan, as well. Decide how long you’ll work at your business before you have to change things or give it up entirely. Decide what you’ll do if things don’t work out or if you decide you need to try again later. Make sure that you’re also protecting your personal assets in the process. One of the scariest things about starting a small business is the fear of losing your home and personal possessions, but a good lawyer can actually help you set up your business so that your liability only extends to business items – not to your personal items.

Save, save, save

Another cause of fear for many entrepreneurs is what will happen to them financially while they’re starting a business. Hardly any businesses turn a profit for the first few months – or even the first few years. You need to come up with a financial plan an emergency savings so that you can create your business. This may mean starting your business on the side while you hold down your regular job, or it may mean learning to live on just your spouse’s income while you’re starting your business. In any case, it certainly means that you need to have a significant amount of money in your personal savings account before you get started. This way, if you have an emergency, you can finance it without panicking. Though saving up means delaying the start of your business, it’s definitely worthwhile if it gives you more peace of mind and gumption to go after your business goals once you get started.

Find someone to answer questions

Talk to another small business owner, a group of small business owners, or a small business organization in your community when you need help. You don’t know everything about starting a small business, even when you’re in the middle of it, so knowing where to go for help is vitally important. Make sure you have resources for help during your planning and start-up phases, and you’ll be much less likely to be stalled by your fear of failure.

Consider various financing options

Of course, one of the major fears of small business owners at the start of their businesses is financing. Do you find investors, or ask family members for loans? Do you personally finance your business, or go to a bank? Do you get a business credit card, or not?

It’s a good idea if you work with a variety of flexible financing options. For instance, you might use a business loan from a bank to get your basic materials and supplies, but you might also ask your parents or other family members in financially sound situations for personal loans. Business investors can also be helpful, so long as their investment doesn’t mean they get control over all your business decisions, which can be frustrating and harmful for new business owners.

A business credit card can also be a good option for day-to-day financing, especially once your business is bringing in enough money to cover the payments. Just make sure that you’re using this financing responsibly by keeping your balances at or below 50% of your credit limits and by using your credit cards for certain basic purchases that you’ll be able to pay off within a reasonable amount of time.

These steps can help you feel more prepared for starting a small business, so that you can overcome your fear of failure and just make it happen. Remember, there’s never a perfect time to start a small business, but by being prepared and thinking through all your options, you can create a great business at any time.