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.

I rarely get outraged by events in the public eye; moral indignation and sitting on a high horse are easy to do and lazy. However, the events surrounding the allegations around News International journalist tactics has really left me nauseated.

To readers of the blog outside of the UK, the story so far is as follows; a private investigator hired by a journalist working for the News of The World was found guilty and sent to jail for hacking into voice mail messages left on mobile phones. The paper claimed that these were rogue elements and had nothing to do with the paper.

The story is now much wider than that and it appears that many people were having their mobile phone messages illegally listened to. Stories were printed on the basis of these leaks. Many celebrities are now suing the newspaper and many have already accepted compensation.

The story has this week taken a very sick and twisted turn (but on the basis of allegations – not fact). The voice mail messages of a missing teenager appear to have been hacked and some messages were deleted to make room for more messages as the inbox was full. This gave the family false hope that she was alive when she had actually been murdered. The Police also appears to have colluded in this practice and the Chief Executive of News International in the UK told Parliament that the Newspaper did make payments to serving police officers for information.

Yes, you can understand the complete anger many people in the UK are feeling. The CEO of News International refuses to quit her post because she claims she was not directly responsible. But this is where there is a huge lesson for entrepreneurs. Many decisions we make on a daily basis do have a moral dimension and there is no escaping that.

Through those decisions and through the decisions we encourage our teams to make, we create a culture which we are ultimately responsible for. If there is a strong “win at any cost” culture do not be surprised when people start behaving in a particular way. It is no accident that it is organizations like Newspapers, Banks and Recruitment firms end up with cultures which seem to be morally bankrupt.

I strongly believe CEOs and founders are responsible for the moral conduct of the companies they lead. I was involved in selling some toy guns at one stage and one day we saw these ‘toys’; they were very realistic and very powerful. That day, despite it being a profitable venture, we closed the business down. It was just not consistent with what I wanted my business to be about.

So, I do think that in the case of the News International, the CEO needs to resign. They need to accept that they allowed this culture to foster under their leadership.

As Entrepreneurs and CEO’s we should feel entitled to enjoy the massive fruits of success we may get for the risks we take, but equally we should equally pay the price when things go wrong.

I have been travelling a lot recently and in the last few weeks, my travel has included, Halifax, New York, St. John’s and Cape Town. The reason I mention these multiple locations is that Entrepreneurs in these locations are exactly the same.
As a breed Entrepreneurs are a world apart. They are united more by their types than their nationality. I love being in this world.

But for some strange reasons many of the entrepreneurs I know are very self-critical; this is a very good trait to a point. But it also becomes a big problem as I think many of you get addicted to mentorship or personal coaching.

Therapy has a very vital role to play in life if you have been through some trauma or something eventful that you need help to make your way through. However, I find the majority of therapeutic interventions utterly useless; and worse than that, sometimes very harmful.

It seems that because entrepreneurs are so focused on themselves; they engage in this almost narcissistic practice of seeking insights into what they are like. Worse than this is the class of industry that has developed around entrepreneurs. One of the problems with the growth of entrepreneurship is the development of life-coaches, business coaches and mentors who are blatantly not qualified for the role.

This is particularly noticeable in places like Halifax. There is an entire network of people who go around calling themselves entrepreneurs; when they blatantly are not. Be very careful of whom you accept advice from. Some of the worst business ‘insights’ I have heard are from ‘senior’ (they are never junior) business authorities.

Before you allow yourself to be judged by anyone- and I mean anyone, be critical and see what value they can offer. A quick test for you is that if at least 50% of their income comes from business support/ mentoring etc.; they are probably not right for you.
I have publicly stated on many occasions, that I would not ever invest in a business where the plan has been written by external consultants. I feel the same way about entrepreneurs who ‘need’ too many low rate mentors.

Just as they say you should judge people by the company they keep, you should judge the business acumen of people by the mentors they surround themselves with.

In summary; trust yourself. As entrepreneurs, of course you are slightly messed up. But celebrate that fact. Entrepreneurs; you are beautiful.

I made a rule last year to stop investing new money into new ventures. Before 2011, I had invested in 25 companies since 2004. And overall, like most Angels, I am deeply into negative territory (so please don’t ask me for investment advice – my track record is pretty bad). So I will now only invest money earned through an exit into new investments, and only have 10 investments still ‘active’. So I have to wait till I get an exit from these before I can invest any more.

However, I managed to get a good exit last week (which I tweeted about @permjotvalia) and as such I was delighted to be back investing again.

I have invested the proceeds from that exit (promised as it still has not gone through 100% yet) into two companies and I wanted to share the information on those companies and why I had invested in those companies.

Before I say any more about those companies, I should issue a very appropriate wealth warning. You should not read the information below as an invitation to invest. Angel investing is risky and you are likely to lose your entire investment. Before you engage in any angel investing you should ensure that you understand the risks and have sought professional advice and that you are indeed an eligible investor (either a High Net Worth Individual, a sophisticated investor or a recognised counterparty)

The first business that I will be investing in is a company called Hoops Innovation website is www.shotloc.com This is a company based in Halifax, Nova Scotia and I think they are doing something which is awesome and fun. Being able to shoot hoops accurately is a key skill in Basketball. This skill requires you to hold the ball in the right manner and follow through in the right method. Shotloc is a great and scientifically proven training aid that will improve your shooting accuracy.
That’s just the product, but what has impressed me most about the company is their ability to have achieved so much in such a short time. They have achieved listings with major retailers and will be available at www.amazon.com in a very short time (days). The great thing about being on Amazon is that they sell a huge number of basketballs and every time they sell a ball, they can ask the buyer if they would like to buy one of our training aides as well. You can never tell – but I really think this is a winner.

The second business is called http://myows.com and I am excited about this as this is a business based in Cape Town (have you got the impression that I totally fell in love with this place yet?)

This is a business that uses the internet to empower creators of original works (hence Myows – My Original WorkS) to ensure they are copyright protected at a tiny fraction of the cost to the standard ways of protecting copyright. Soon to be announced enhancements will ensure that the internet is scoured to see if any.

One of the big issues I have had with Lord Sugar on The Apprentice is the total lack of respect he seems to have for education as a whole. He seems to dismiss anyone with a good education as being too theoretical and lacking common sense.

This is a real shame. He is an excellent business man and I have learned a lot about business from reading his biography “What you see is what you get”. I just wish he would accept that there is a very valid role for business education and education as a whole. Education is a vital ingredient in the economic vitality of a country. The emphasis on vocational training I think misses the point of how all of us benefit from having some in society pursuing studies in the Arts and Humanities. A great education above all else teaches you how to think.

I have spent some time recently with MBA students and I work very closely with someone (who is a very dear friend) who seems to loathe MBA’s and was shocked to learn that I was an MBA!

I am a big fan of an MBA education – but there is huge difference between the quality of MBAs. If someone for example comes to me with an MBA from a less than prestigious institution and is still under 25, I am afraid that their MBA is worth nothing to me. They will not be in a position to argue for a premium on a salary over and above a normal graduate with one year of work experience.

And herein lies the greatest lie about education – all degrees are not created equal. They are not. Starting in 1992, with the John Major Government in the UK, we in the UK have been pursuing the idea that 50% of all school leavers should go to University rather than the 8% when I went (in 1989). This has led to a proliferation of institutions offering degrees. But with all due respect a degree from Oxford in English is worth much more than an English degree from the University of Bedford (or whatever it is called).

The government has made the problem worse by allowing Universities to charge up to $13,000 a year in tuition fees (the previous cap was around $5000). In the Education market price is synonymous with quality. No University will want to charge less than the maximum allowed. So students at many institutions will end up paying the top price for a very bad education. This will represent market failure and the government should intervene.

When it comes to MBA’s the problem is made worse. I was lucky enough to be a judge on a recent MBA business plan competition run by the University of Manitoba, with entrants from around the world. And the quality was simply stunning. And I know I have come across entire MBA classes that would not be able to compete at that level. And that is unfair on students who are expected to pay top dollars for their MBA.

I do not think an MBA or any business course will turn anyone into an entrepreneur; but that is not the purpose of the course. But like with all subjects, the idea behind a business education is to help you make better (not perfect) decisions. I remain deeply committed to supporting business education and do not buy into the lazy criticism of business education as all theory and no practice. Those who support this lazy view do not fully appreciate the role a good business education can play.

And to entrepreneurs my advice is to spend at least four days a year on business courses. The best feedback I get from people who attend my course is that it gives them an opportunity to sit back and reflect about the business they run on a very high level with a few different models that can help them make better decisions.

Support your own education and the efforts of those who work with you and for you to continuously improve their knowledge base. Allow yourself to be amazed at what a business education can do for you.

I have been fortunate enough to have travelled a lot in the last month and I have been able to think about the real differences between the different entrepreneurial scenes in different places.

In the last three weeks, I have carried out some training in Winnipeg, Halifax and of course stunning Cape Town.

The first thing that struck me as odd was the demographics of the groups I was dealing with. My time in Cape Town was the first time I had spent in Africa and although I interacted with around 100 or so people in the ten days I was there, I only came across three black people. The strange this was that one of them was from Kenya and one of them was from Dallas!

When I recanted this to my friends in Canada and in the UK, they immediately jumped to the conclusion that this was racism. They were right, but not in the way that they thought. The government of South Africa through its black empowerment policies has instigated race related economic policies which guarantees low participation rates for the white population in employment and therefore forces them to pursue a path in entrepreneurship.

As it happens, I think this will be a very interesting business and social experiment – and it will be good to see the results in a few years. What does happen to the business prospects of a country when much of its talent is forced into entrepreneurship?

Can you imagine if in the UK or in places like Nova Scotia, talented people were prevented from taking jobs in government or large businesses and had to start their own business? Interesting.

Halifax is my second home (The Prince George Hotel at least!). And it really is an awesome place. You do notice that there are almost too many initiatives and organizations in the ‘entrepreneur’ space. As an entrepreneur you have to be very careful about whose advice you take and you should always really judge the people that are trying to judge you.

Much of my credibility came from being a mentor at Seedcamp in London – and the feedback that came from that. But as a trained salesperson, I know that I am only as good as my last business deal, or coaching interaction or talk.

Many managers I know get a real kick out of managing people – they measure how successful they are by the number of people they manage. I think I am good with people but I really hate managing people. The problem is that as you start to grow as a business, you may find that you are increasingly involved in HR issues rather than growing your business.

Managing people can be very rewarding and certainly it was one of the best aspects of my last role at Ernst & Young – where I was directly responsible for managing six people. But I was lucky; the people in the team were high performers and wanted to get on with it.

The reality is that although you may really believe you are founding the next Google; your new employees may not share your passion. And recruiting the first few people is actually easy. Certain types get attracted to start ups and love being called co-founders. I realised last year how motivated I was by this when a company recruited me and said I would be a co-founder.

Your problems really start when you look for employees for non-core roles (yes, I know that every employee is important and that everyone is part of a winning team etc – but back in the real world). You will not be able to recruit the best talent for roles such as credit control (which I actually think is one of the most important roles in a fast growing business). And you will not be able to compete with the big corporate in terms of salaries that you can offer or the terms of employment (gym membership, subsidised canteen, pension arrangements etc) and the employee share pool will soon dwindle if you start offering everyone access to the share pool.

So, what is my advice to start ups in terms of recruiting and retaining staff?

Firstly, find a really good HR person/ part time director/ outsource partner. This is vital to ensure that you take care of the paperwork and create the impression that you are serious and professional about the way you treat your team.

Secondly, take a long time over hiring decisions – at whatever grade. Hire slow, fire fast is a good motto.

Thirdly, treat the interview as a genuine two way sale process. You want to impress the interviewee as much as they will hopefully want to impress you.
Offer an accredited training program with a local University or College. There are many government programs which offer subsidised training. Why not offer employees skills based learning where they get a qualification? Employees rate this very highly as a benefit – and it could be a very effective way of you keeping them with you during the course (the longer the better!)

Fourthly, if you are the key entrepreneur, really do try and stay away from the managing people piece. It is hard work and can take up lots of time.

Anyone who has been following my twitter feeds @permjotvalia will know that I am in gorgeous Cape Town at the moment and loving it.

Recently, (since last year), I have got involved in helping local governments with some advice on encouraging angel investment and helping start ups. That work has took me to some great places including St. John’s, Newfoundland, Szczecin in Poland and now to Cape Town.

I have seriously been blown away by the beauty of Cape Town. Absolutely stunning and you can see why the natural landscape encourages creativity and dreaming about possibilities. But there are two things that are really striking about the people I have met so far.
Firstly, there is a real focus on working together and helping each other to make the digital sector become world class. This works through all the organisations I have met so far either private, not for profit and government organisations.

It reminds me of the reason that I fell in love (and remain in love) with www.seedcamp.com. This was the first time I saw lots of people get together and put their expertise into something that was for the greater good in business rather than to try and get a deal for themselves.

Cape Town has that same spirit in abundance. I even got to meet all the VC’s from the area sat together in the same meeting; unbelievable!
The two things I really think help entrepreneurs to be successful is being able to understand percentages and having coachability.

The other thing that I have picked up (and I really was not expecting this) is the total humility of people here in the Cape. They are totally open to new ideas and advice and despite meeting some people who are already more successful than I will ever be – they are keen to listen to me.

When I was a student in the late 1980s, I dreamed of visiting a free South Africa. That dream has come true. And I would encourage digital entrepreneurs to visit Cape Town (if you let me know if you are coming here – I will happily introduce you to some great people to meet). And it is a great place for a holiday, especially as they have their summers when we (Europe and Canada) have our winter!

I have so far seen dolphins (swimming with the boat I was on), baboons and penguins all in the wild – and breathtaking scenery. And if you were to come and have at least one ‘business meeting’, your holiday expenses could become partially tax deductible!