Business Angel Blog

So once again, I find myself apologising for not having posted a blog for so long – although this is the longest period I have gone without and sadly, I received no complaints at all about no blogs!

I always enjoy the festive break as it is a great time to reflect and take stock of what you have done and what has yet to be achieved. It is also one of the few times of the year where you can take a break without worrying about the calls going unanswered.

The other interesting thing about personal ‘stock takes is that it is one of few activities that really reveal gender differences; men tend to overestimate what they have achieved and women tend to underestimate what they have achieved.

Everyone has been saying how they expect 2012 to be a difficult year. For once, I would say there is merit in the consensus view. The Euro drama has not played itself out and I just think the European leaders have not acknowledged the full scale of the situation or how powerless they are.

I am a very proud and staunch European but the Eurozone simply does not make economic senses. Along with a single currency you have to have single points of control. There are (and have always been) two Europes; a Northern Europe and a Southern Europe. What does make sense is to have two ‘Euros’ one for the North and one for the South.

There is no hope for Southern Italy (which I love) and Greece to compete with the super efficient Germany and Scandinavian economies. Normally, free floating currencies will compensate for these inherent differences, but they haven’t. Germany is benefiting from a massively undervalued currency (for them) really helping them to boost their exports (last month they overtook China as the largest net exporter!) and Greece and Ireland are seriously being hampered by a very expensive currency (for them) not allowing them to find the right level for their exports to be competitive.

The current economic management of Europe is a fantastic manifestation of Nietchzse’s maxim “principle is the enemy of the reason”. The leaders are so wedded to the idea of making the Euro work that they are prepared to let reason fly out of the window.

And for once, we in Europe all need to wake up to the idea that whilst the Germans are being asked to dole out more to support the Eurozone, they are by far the largest beneficiary’s of the Eurozone as well. There is something fair about them being asked to pay more towards the cost of keeping Europe solvent.

The hope for me is the USA. The economy seems to be moving again and I expect Unemployment to dip below 8% by November, ensuring Obama’s re-election. I do think Obama will win – and win convincingly. The main reasons being that the economy will improve, Romney will fail to ‘super-charge’ the Republican base (a strategy that Karl Rove deployed to terrifying effect in 2004) and I do not think in this year, Americans are willing to vote for a Private Equity guy (just see the anti-Romney video that his ‘colleagues’ in the Republican party have produced).

The UK will also benefit from the Olympics and I do not think we should underestimate the effect that will have on the UK economy. Along with the millions of visitors, it will bring lots of advertising dollars as brands will be desperate to communicate with that very attractive demographic.

And of course, inflation is showing signs of easing in the UK but I do expect things to be very tight here as companies continue to hoard cash and few investment projects get the go-ahead.

So…….

If you are an entrepreneur what does this all mean?

1) Now is a good or as a bad time as any other to start up
2) If you are seeking to work on Government financed projects – forget it
3) If you are looking to export – that would be a good strategy, go for markets are are in good health such as Northern Europe.
4) Export quality. It is going to become harder and harder to export on the basis of price alone.
5) Shop around in terms of the ideal location for you to be based as an entrepreneur. I did a lot of travel last year and I was amazed at the support available to attract and retain start ups. (I will be writing a blog about this soon) but be very flexible in your thinking.
6) There will be some great restructuring, management buy out opportunities. Get together the key skills needed to run an enterprise and you will be surprised at the opportunities available to you as companies continue to focus on their core activities.
7) Don’t give up.
If it’s really not working – learn when to give up.

And as always I wish you the best of luck for the New Year.

In my last blog, I wrote about the Pareto rule, commonly known as the 80-20 rule. Pareto was the Italian genius who discovered the 80-20 rule over 100 years ago.

Pareto is remembered for his work on this and of course understandably; it is a very important analysis tool for every business (and can be used to great effect for personal effectiveness as well). However, I wanted to use today’s blog about another piece of work that Pareto co-authored. This piece was to do with political elites (and led to him falling foul of Mussolini).

Pareto developed a theory that basically stated that power oscillated between two types of leaders (or elites to be more accurate). These two types were labeled lions and foxes. The theory basically stated that leaders have characteristics that make them either behave like a lion or a fox.

It is interesting when you look at the past prime ministers of the UK going back to Harold Wilson – they seem to have held a steady pattern – of a lion being replaced by a fox (it is interesting that every lion has been replaced by a fox – without there being a general election!). The pattern also seems to holds true for US presidents. It is as if the population as a whole seems to choose different characteristics for different times – or they simply want a change.

Many people have argued that the theory of lions and foxes is too simplistic. In terms of the analysis I have done on US presidents, my fox maybe someone else’s lion. And then there is bias; is it really better to be a lion than a fox? They both end up occupying power and it is not a judgment on morality or effectiveness. It is just about the skills they use to get to power and how they may stay in power.

When I think about company leadership, it tends to follow the same pattern. Lions and foxes tend to alternate and they bring different skill sets and different priorities that can help company get through the phase they are in. Lions can be a bit too focused on themselves and the constant evangelical tone can get a tad tiring. Whereas working for foxes can be no fun at all – and you sometimes feel that you are lost in a soulless bureaucracy.

Have a think though about what trait you think comes closer to describing you. You will always be better of replacing someone who is different to your own trait – and equally, if you are a founder of an organization, you would be better served promoting someone to succeed you who is different to you. When you replace someone who is similar to you, you are likely to get clash of the egos.

It also will help the business if different skill sets come to the top of the organization and help it grow. If you are working for a lion or a fox, and they are the same as you – move to another organization!

Pareto was a genius and most of us will have come across his brilliance when we talk about the 80:20 rule. Pareto was an Italian Economist/ Sociologist writing at the turn of the century (he died in 1924).

Pareto discovered that 80% of wealth was held by 20% of the population across most countries across most time periods. He was then able to find that this rule held true over most things.

Today, retailers know for example that 80% of their sales come from the top 20% of their product range. Or that just the top 20% of their top customers account for 80% of their sales. This ‘rule’ tends to hold true across most businesses and most fields. You may conclude from this that because of the huge cost of carrying stock – why not only stock the top 20% of items. There is a danger in this which a real life example may help illuminate.

It is known in the sandwich retail business that most customers will only ever buy one of three sandwiches (is this true for you?). However, customers like to choose from at least 10! (again is this true for you?). Customers feel very annoyed when they can only choose from a few – even if the ones available for selection are the ones they would choose from!

Customers need variety so there is a danger in cutting back to much, but nonetheless, Pareto optimality is useful in determining a business strategy. I would urge you to use this rule as much as you can. Focus your marketing spend on the 20% of your customers that generate the most profit, focus your stock availability on the top 20% of items. Focus most of your processes on the areas that generate most of the output.

Recalling Pareto always makes me smile as it brings back an anecdote which occurred in the first six months of my post university career. I was working for Mr. Kipling cakes and I went with my arrogant know-it all boss (Mr. S) to see a customer who was stocking our range of products. He explained to us that he needed to look at the range he was stocking.

Customer “I need to look at the range I am stocking. Pareto runs this shop”

Mr. S “And where is Mr. Pareto today?”

I got a telling off for laughing (I know you should not laugh – but it was funny because my boss thought he knew everything)

It was also nice to be able to apply something I learnt at University to my job selling cakes!