Business Angel Blog

There is a lot of management speak about learning to overcoming your fear. Most of the fears we have are based entirely on very good reasons. For instance, I am very scared of Great White Sharks; that is a healthy fear. So last month, in South Africa, I went diving in the Ocean with some Great White Sharks and it was an awesome experience (one of the best moments in my life!) but it did not help me overcome my rational fear in the sense that I would never want to be in the Ocean with those beautiful animals without the aid of the cage that I was in at all time.

And we get on to talk about Entrepreneurship. One of my many pet hates is the way we are encouraged to become a nation of ‘risk-takers’. Entrepreneurship is not about risk taking, it is in fact the complete opposite. And risk taking is not in itself a good trait. I would argue it was the risk taking culture that existed in the investment banks that got our economies into the terrible mess we are in. Borrowing money is always a risk, and we in the West were collectively encouraged to take this risk; so the idea that risk taking is an inherently good thing to do is simply wrong.

The best business start ups I have been involved in are all about mitigating exisiting risks rather than being an exercise in taking risks. It is interesting to note that many of the biggest companies that exist today (Apple, Microsoft, Oracle etc) all started off as Consultancy projects where the basic product was developed at someone else’s expense and then scaled up and rolled out.

Business is not about taking risks and I will never invest in someone who shows off about the fact that they are a risk taker. That is also why I have had a problem with the over use of the word entrepreneur.

This is why a track record is so important for investors. It is recognising that the ‘entrepreneur’ has learned that running a business is not about taking risks but about managing risks.

My background is in sales and my first business (which I am still running) focuses on sales training. What is interesting though is that the best business lessons I have learned have probably been as compliance officer of Flight and Partners, the fund management business that I co-founded over four years ago.

It is all about recognising the inherent risks involved in business and systematically reducing those risks. It is the same as any extreme sport or back to cage diving with Great Whites. People engaged in those sports don’t advertise the risk, but rather focus on how the inherent risks are mitigated. Risk means there is a strong chance of different outcomes.

Let me tell you, I am not going into the Ocean with Great White sharks with someone who advertises the fact that they love taking risks. I can tell you, investment decisions are made on the same basis.

Halifax is the capital of Nova Scotia and given the size of the economy in these parts, the government plays a very proactive role in trying to boost and support the economy here. They are particularly keen to encourage entrepreneurs and work with them to help their businesses.

My problem with Business Link in the UK has been that I have found them to be very poor whenever I have had to deal with them (I would simply get rid of business link altogether if it was up to me) and no one who has used their services has ever told me anything different.

I have enjoyed working with agencies like the London Development Agency or New East Manchester when they ‘skip’ the middle man and broker solutions directly. One of the issues I have always found with Business Link is that they seem to be staffed by people who do not have the first clue about running a business and seem to forget that the businesses they are supposed to help are their clients. (Ouch – there seems to be some personal issues on my side here and I should add that my experience is limited to Business Link, London)

The staff from government bodies I have met so far in Halifax seem to be similar to the ones I have met in Manchester. They ‘get’ business and are really receptive to ideas. They don’t seem to spend ages writing a manual and then look for people to deliver the manual – they are really proactive at asking people like me for ideas.

If you are an entrepreneur working in the high tech area (in any field) you should go ‘jurisdiction’ shopping. By this I simply mean you should look around at what support is available to you from government resources. The UK is going to be a pretty miserable place for the next 10 years or so. Government borrowing is simply huge – and is deferred taxation. Taxes are rising steeply for those whose incomes are over £100,000 a year and taxes will remain high. Whilst I have called the bottom of the market, the recovery will be slow and steady.

You may just decide that another country may offer you better support. And if you are relying on savings to see you through the first year or two, another country may help that money stretch further. (I have learnt that living in Canada is a lot cheaper than living in the UK – about half the sterling cost) and I know that the provincial government in Nova Scotia can offer lots of support.

All I am saying is shop around – you are in demand!

It has been some time since I have delved into the lessons of my MBA to write a blog which may actually be of practical use to readers who are running a business. I hope this blog corrects this.

When running a business you are always faced with the challenge of how to grow the business. A useful analytical tool used by marketers and taught on business courses is the Ansoff matrix. It is a tool that I think is incredibly good and I do use it all the time. I hope you find it useful as well.

The starting point is that you are already in business selling your existing products to existing customers. You have three possible options in terms of where to go next.

1. Sell new products to existing customers
2. Sell your existing products to new customers
3. Sell new products to new customers

The options are listed in order of ease. The strategies should be pursued in this order. And yet many companies try to pursue option 2 or option 3. For example, I know too many examples of companies who are successful trying to pursue a strategy of selling into the USA. I believe that this is primarily driven by ego rather than a crying business need.

When selling into the USA (or indeed other export markets) you may find that your products do need to be substantially adapted. You are therefore moving to option 3 without even realizing it!

Selling new products to existing customers is always the best option to pursue. And you will notice that many of your customers will be looking to cut down on the number of suppliers they deal with. This could provide you with a golden opportunity to take a category approach and to link up with other suppliers who provide complementary products or services to the ones you may be supplying to your customers.

This can improve and strengthen your relationship with your customers as it may increase the number of times you see them – and build up more of a partnership approach. The margins will probably be lower than on your own products but it can be a very useful incremental revenue stream.

You will need to of course continue to focus on selling your existing products to new customers. Business needs you to continue to diversify risk and having more customers is a way of increasing revenue and diversifying risk. I have written many blogs before about increasing your sales (my specialty) and I hope you are able to use some of that advice to good effect.

With all things in life, planning is very important, but the execution is always more important.

Best of luck with the implementation!

My first serious venture since leaving the security and status of employment (Sales and Marketing Director at Ernst & Young in London) was running a business called Help with Sales. I fell into this by accident as I simply started off by helping a few companies I knew with their sales approach.

I also got involved with coaching staff and teams on improving their sales effectiveness. To date, it is still the most enjoyable part of my varied weeks. But there are lots of consultants around and ironic though it may seem, I have never yet had to sell my services at Help with Sales! The work has always come through from word of mouth and referrals from satisfied customers.

With the growing number of unemployed people out there, especially some very talented under-employed people now available, there is a growth in the supply of consultants out there. I can understand the suspicion that companies will naturally have towards consultants. An Angel I met in Madrid lamented that he hates ‘wealth advisers’ and always asks them “what qualifies you to advise me on my wealth?”. I can understand the sentiment, but do think it is misplaced.

I am highly suspicious of strategy consultants. If a company that I had invested in had hired a team of them, I would ask for the immediate resignation of the entire board. The business of devising strategies and implementing them has to remain the exclusive domain of the executive management team of a business with the non executives providing a good sounding board and advising on alternative strategies for consideration. Hiring outsiders for this is tantamount to accepting you are not up to the job.

But when it comes to consultants with specialist skills that you do not need to have permanently in your business, it makes perfect sense to hire consultants for very specific projects. Many companies have horrible experiences with consultants (and I would love to hear your stories both good and bad). And of course it makes sense to hire people who can ‘upskill’ your team. But make sure you always take references from former clients or employers before you engage consultants.

I am still kept busy with occasional projects from Help with Sales and with my move to Canada, I am particularly interested in hearing from companies based in England wanting to sell into Canada and the USA and from companies based in North America looking to sell into England and Europe.

I could not end this blog about consultants and teachers without a great quote. As Woody Allen puts it, “those who can do, those who can’t teach, and those who can’t teach – teach gym”.

Regular readers of business angel blog will realise that I have gone from writing a blog a day to about three in the last 10 days. I have been taking my own advice and have given myself a well deserved break in Egypt over the last week.

It was very relaxing and I spent an average of about three hours a day in the sea looking at the most marvellous coral and sea life. Wonderful and well recommended.

Since I have got back, events have been a little bit hectic to say the least and I am in the process of launching a new business which will go to market on the 2nd of February – so my apologies for not writing more regular posts and I hope that you bear with me as I write with perhaps less frequency than I have done in the past.

I would rather stick to the quality of the blogs than to quickly churn out lots of blogs for the sake of sticking to a daily post. I hope this is something you agree with.

I am also happy to bring to your attention a recent comment that has just been posted on this blog about my blog explaining WACC. As you can see the contributor feels that I am wrong. I am happy to defend my argument that by increasing the debt level in a business, you can bring down the WACC of a company and therefore increase the profits earned.

I do feel the reader takes an unnecessarily harsh tone. I do like robust debate but lets keep out the making someone feel stupid tone or advise people to go back to school. The purpose of business angel blog is to hopefully illuminate and explain some of the terminology and concepts which are helpful in running a business. The group’s knowledge will always be better and more diverse than the knowledge that I have as an individual.

Therefore please do keep your coming and if I am wrong about something – please forgive me and put me right. The only thing I would ask is that you do so in a tone that is not disrespectful.

The reader is right that as your debt level increases the cost of your equity may increase (although this is actually only true when your debt level goes beyond a certain point). You would not expect a higher return investing in a business which has gone from 10% debt to 30% debt, but you would if the business went from 70% debt to 90% debt. But the critical point the reader has missed is that the flip side of increasing cost is increasing return to the holder of the equity.

If I am the holder of private equity in a business and the debt increases and therefore the cost of my equity increases – that means therefore that my return has increased.

Thank you!

There is a strange problem facing businesses that are in ‘cruise-mode’. That is when the big challenge such as launching the business has been met. There are parallels with how we are as people.  We tend to wish for the problems we encounter on a daily basis to ‘evaporate’. We long for a time when we can recuperate, rest, chill, relax etc and put all our problems behind us. And yet most of the Entrepreneurs I know find that their performance drops once a goal they have been fixated on is achieved.

It is like losing weight. It is easier to lose weight than to maintain a stable weight. When losing weight, you are focused on a goal and you are working towards progress and measuring your success on a regular basis. As you are measuring progress towards your goal, you get reignited with determination and energy to continue to making progress. And yet once you have achieved your goal, the focus drops and ‘maintenance’ is just not a galvanising objective which makes you get up in every morning. Needless to say the weight will creep up again.

So once you are up and running in business, how do you continue to motivate yourself and set new goals for the business?

1) You can set yourself a valuation target. What happens when you achieve it? And what valuation are you talking about?

2) You set yourself a profit target. Do you stop working the day you achieve that number?

3) You recognise that your skill set is in setting up and not in running a business. Very few founders of businesses make successful operators. It tends to be the case that this transition is painful rather than smooth. As an investor and business angel, I always ask the founders of a business what their personal exit plan is. The answers are always very revealing.

4) You set yourself through the business a new challenge. You can make the most of your entrepreneurial skill set by leading the charge into new markets or new areas, whilst giving someone else day to day responsibilities.

5) You recruit a new team to learn from. Lord Bilimoria (Cobra beers) always makes a point of recruiting people who he believes are better than him and add to the business. I have sadly met many entrepreneurs who will only recruit glorified ‘assistants’. Would a top notch candidate really want to work for someone like Alan Sugar?

6) A great goal setting technique that I use is to work backwards. That is I see what I want to be doing in 5 or 10 years time and then work backwards in the sense of where do I need to be after three years and what do I need to be doing now to prepare for that goal.

7) In coaching a powerful technique used to get the fire and passion back in people is to ask coachees to write an obituary. It might sound morbid – but try it. Write about what you wish someone would say about you after you have gone. This will tell you what really matters to you and what gives your life meaning.

You can only procrastinate when you have goals to achieve. Just remember procrastination is so much better than doing nothing!