Wednesday, 25 January 2006

Why can’t people come up with their own ideas anymore?

I keep hearing about how ‘innovative’ and ‘creative’ the business environment in the North West is, and yet I am constantly confronted with people jumping on various ‘entrepreneurs’ jumping on bandwagon after bandwagon. If I was to count the number of times in the past year I have been presented with investment opportunities in….

Events & Promotions Companies
Yet-another-car-insurance-or-mortgage-broker/website
The next-big mobile ring-tone & logo site
Dating sites
Concierge & Lifestyle Management Companies
Yet-another-ethnic-focussed-website-opportunity!
…. The list goes on.

Please don’t get me wrong, I’m not knocking any of the industries above, but the sheer volumes entering these markets, is ridiculous. The scenario in merchant industries is no different, with entire teams deserting, at the first sign of group-profit to “do it alone” – leading to a mass dilution of the market for the product and/or service.
Let me give you some examples from businesses I have consulted with.

Scenario1: A web-design agency, about three years old, starts to make money as client relationships and market position solidifies, the director of the business (and sole shareholder) is pleased. VERY QUICKLY, most of his key-staff, seeing the profit opportunity, desert the firm – taking clients with them, to set up alone….. Net result: all these ‘micro agencies’ died off quite quickly, leaving their previous employer catastrophically damaged – nobody won.

Scenario2: Garments Company brings in sales manager to develop retail accounts. After spending thousands training him, and equipping him, and introducing him to contacts, he decides to leave and set up his own garment trading company…. Net result: he didn’t realise the amount of raw-finance needed to set-up in that industry, and after spending most of his savings, and taking out a second mortgage on his family home, he had to give up and return to industry.

Scenario 3: Person X is quite keen to keep themselves ‘up’ on business media, and keeps seeing articles about the amount of money involved in ethnic markets, investing a lot of their own savings, and time developing a website to service their target market, hoping it will just ‘boom’. Net result? Cash invested into a site which simply does not pay for itself to be there… a loss leader, and after they left their job to work on it full time… they were out of the market too long to return at the same level of seniority as they were employed at before.

In the vast majority of cases, people simply don’t realise the amount of capital, time, effort, and sacrifice needed to enter a competitive market, whether your offering has unique value or not, and rather than incubating our true innovators, the business press and media convince all and sundry that they can be millionaires overnight by ploughing themselves into every niche they can find. You only have to watch Dragons Den to see the amount of money, and time people have wasted on ideas which have such small niches, they have no hope of generating any real money.

When considering market dynamics too, its clear that without ‘market share’ businesses cease to become viable, and often, particularly in volume businesses (whether that be traffic volume for websites, or trade volume for merchants), the investment needed in product development cannot be recouped without consolidation of players in the market.

The technology industry has long realised this, and you therefore see companies like google flourish into multi-billion dollar innovative companies (rather than all their employees leaving to set up their own search engines), while we are stuck in a rut of generating millions of SME’s (with incredibly high haemorrhage rates) and very few home-grown companies growing to become the scale of innovative foreign players – and while many would play ‘country scale’ as an argument, it is an internationally known fact that England has some of the greatest innovators in the world, and is capable of competing on the world stage, we’ve done it before!

Those working within the likes of google operate in a different corporate culture, where they realise that often, the only way to achieve the success they want, is as part of a bigger organism, rather than on their own.

I really hope the UK starts to adopt a stance like this, which ultimately encourages more innovative firms to come through the quagmire and into the mainstream, otherwise, we stand to become a breeding ground of over-hyped SME’s without substance.

So when it comes to business ideas, don’t join the bandwagon…. Think first, and create your own!

Click to read full article...

Monday, 23 January 2006

The trials and tribulations of succession!

Donald Trump describes those who are self-made and those who are part of the “lucky sperm club”. The latter being those who are born into nobility, with a “silver spoon” or with exceptional resource. With over 60% of UK businesses being “family run”, the “lucky sperm club” certainly has many members with research showing that these organisations have more productive employees, survive longer, and provide more opportunities to employees and stakeholders. Only 25% of family businesses, however, survive the transition between generations (a process officially called ‘succession’).

While clearly a difficult process for parents to transition businesses to their children (by which I mean ‘offspring’… not actual young kids… obviously), many forget the stresses and strains experienced of ‘taking the helm’.
Over the years, I have seen the process of succession in many family businesses, with the many issues this raises. In the next few sections, I will look at the concerns of those involved in succession, and the impact/effect of some issues:

“I feel obliged to get involved, but my hearts not in it?”
This is by far and away the most common reason for family businesses failing during succession. While you may feel obliged to get involved because it is a “family enterprise”, unless you genuinely truly want to, there’s little point. Businesses are led from the front, and unless you are passionate and enthusiastic about the company, you simply will not be able to run it!

“But I want to be self-made!?”
Again, a common concern for those getting involved in family enterprise is that they will be seen as taking an ‘easy option’ rather than making their own way in life. Firstly I would implore people to not care what the perceptions of other are, you are working for you not to create an impression to others. Secondly, I would see taking the helm of a family business as a great opportunity to prove your capability. A very good friend of mine (who shall remain nameless at their request) joined his family business about 10years ago. The business had a turnover of around £500,000 at the time, and employed 4 people. In ten years, he has (himself) completely diversified the operations of the company, which now turns over more than £80,000,000 and employs over 100 people! In my opinion, if that isn’t self made…. I don’t know what is!

The phenomenon of “filling shoes”:
“I wont be able to fill my dads shoes!” another friend said to me, as he recently got involved with a family import/export company. “No” I replied, “You wont!”. This wasn’t just me being cruel; it’s a simple truth. Invariably, your parents were their own people, and you are your own person, and trying to fill-shoes, or become a mirror replacement for them will end in nothing but agony. Instead, you need to make your own role within the company, developing respect, relationships, and your own management style. People will not only respect you more for this, but you will be considerably more confident in your abilities because of it. Often (by which I mean VERY often), new blood within a company with a different management style can be just the kick an organisation needs to move to that next level!

“There’s so much to take in! And I’m NOT qualified!”
While I’m a big advocate for throwing people in at the deep-end (just ask anyone who works for me), I’m also a realist. Ultimately, whoever currently runs your family enterprise will invariably have done so for a while, and therefore has a lot of experience in managing that enterprise. You should never expect that just at the drop of a hat, you will be able to pop-in and take over! Unfortunately, in some cases (where succession is due to death) people simply have to suck it up and make the most of what they can do, but in the majority of cases, a succession period does ensue where the incoming generation can get to know the company. I’ve typically advised people to get their hands dirty, working at all levels within an organisation, taking time to go and meet customers, suppliers, stake-holders, and understand everything at every level of the company! Unless you have this intricate knowledge, you will simply not have the understanding to run the business. This process does, however, take a lot of effort, and – of course – TIME. Also important is the issue of being “qualified” to do the job. Unless the business is in a very niche or specialist industry (e.g. nuclear engineering) there is little reason to have a ‘formal’ qualification to run the enterprise. In fact, if you look at people that start their own businesses, very few have any relevant qualifications/experience and instead, just get stuck in!

“But will pay me £!”
Money IS important, and a major driver in what we do, and how. You must remember though, that there are clear earning advantages to being your own boss, if your prepared to put in the time and effort to developing yourself, and your company. So many of my friends came out of university, and rather than joining their family businesses disappeared off into big city firms. Looking back, some have regretted the decision. The best example is of two brothers whose father owned an engineering firm. One brother decided to separate from the “family enterprise” to take a starting salary of £50,000 with a firm in London. The other brother, decided to get involved with the family business, but started on £20,000. Now… five years on… “city” brother is on £85,000 and works all hours god sends for his firm. The brother who chose to stay involved in the family enterprise takes a package of well over £150,000 a year (after developing the business into new areas), and also works the hours he chooses (though, it is still inevitably very hard work). The moral here is to look at the potential within your family enterprise and understand that if you play your cards right, you could make a LOT more money from it. Once you are in a ‘career routine’ it is also exceptionally hard to change, and with the best will in the world, most of those who assert to get experience somewhere before they join the family enterprise, invariably never make that final leap back…
Arguments!
However big, tall, old, jaded, strong and independent you are…. Your parents will always see you as their little girl/boy. This is near impossible to change, and not something you should try to. Instead, try and look at things from the other point of view, and understand that in many cases, it is very difficult for a parent to see their son/daughter getting involved in the business, making changes, and running things differently to the status-quo. The key here is communication. Don’t be stubborn and try to do things to “prove a point”, instead, you must be understanding and explain your aims, objectives and methods. Remember, if they have run the business that long, they have a lot of knowledge and experience to share with you! Also, remember that arguments, and contention is near inevitable….

Arrogance!
One thing that always annoys me about succession is that often the incoming generation enter a business with an air of ‘arrogance’ and ‘complacency’ which, even if not deliberate, hampers their ability to run the organisation. Whether joining another business, or a family enterprise, you must come in with an open mind, and willingness to learn. In the case of family businesses, you need to realise that you are under a spotlight, and so must make an extra effort to ‘keep it real’. Also realise that aside from your parents, the employees of a family business (who are, after all, the lifeblood of a business), often have a great deal of useful knowledge, and experience to share and in many cases enjoy the privilege of passing this onto the new generation!

We have, ultimately, only scratched the very tip of the issues and tribulations facing an incoming generation to a family enterprise. Hopefully, though, the above has given you a bit more of an insight into dealing with some of the major issues!

And as for Donald Trump’s “lucky sperm” philosophy? My view is that opportunities are what you make of them….

Click to read full article...

Friday, 13 January 2006

Financing Your Business Ideas!

More than anything else, businesses are oriented around their finances, and whether that be for basic bills, employee wages, stock, supplies or promotions, the fact remains that without that “cash” in the business, it simply would not be able to operate. Often, though, people underestimate the importance of forethought in this regard and fall prey to cash-flow “black holes”.

On more than one occasion, I’ve met with entrepreneurs who know their idea inside out, and can impressively answer any question you may have. The shiny hundred page hardback bound business plan is a piece of art in itself but, when it comes to the crunch and you look at the numbers, costs have been ignored, or are unrealistically low/high, and they are orienting themselves around finding “enough” money to execute the idea, without giving adequate buffer for eventualities. Part of the reason for this is “fear” – whereby the entrepreneur is scared to ask for too-much! But, remember, that the majority of start-ups, even if they are exceedingly good ideas, will fail on cash issues!
When starting a business, there are a number of options available to you for funding, and depending on your own level of experience in enterprise, one or more will suit your needs.

Self-Financing:
Surprisingly obvious, but a relatively high-risk option, often requiring one to exercise cash they may have locked up in their home, and personal savings/nest-eggs. If the business idea will create assets (eg: stock, property) this is a good option, as you are simply translating from one capital asset to another, but remember, if things start to go wrong, you are setting up a massive personal exposure for yourself.

Friends & Family:
Again, this is a very commonly used method to finance start-ups. Your friends and family know you, know what your capable of, and if your idea is right, are well placed to help you raise the funds to execute it! The plus side is that you are dealing with people who already know you… but the major downside is the stress of being in debt to your loved ones, particularly if things don’t go so well. I would always encourage people to investigate this method, but only if they have the strength of character to deal with the downsides.

Venture Capital & Business Angels:
The “.com boom” pushed these terms into the mainstream, with stories of eighteen year old entrepreneurs raising millions of pounds for terrible ideas! Whether we are looking at venture capital through specialist firms, or business angels (high net worth private individuals who invest in companies), the media has done a lot to glamorise their position in the market. The reality is, though, that to raise money from these sources, you will need a very strong business plan, and need to justify every aspect of your company, and even your suitability to run it. In any case, the investing body will also take a significant “chunk” of your business for their stake, and you will be monitored, assessed, and reviewed regularly. The major plus side is that it is relatively low risk, and often-times, these firms have the contacts you need to grow your business. HOWEVER, you will lose a lot of ownership. Venture Capitalists are also highly utilised where the business idea itself requires a large amount of start-up capital, which would not be available from other sources.

Incubators:
Another term bantered around during the “.com boom” was business incubators. Effectively these are organisations who set up spaces to grow, develop and support new businesses, giving them the infrastructure they need (not just cash) and support from other entrepreneurs, mentors and professionals. For many individuals who are not experienced in business, or maybe are more risk averse, these incubators (or “business accelerators”) can provide the perfect forum for growth, especially if they do not have the cash resources to develop their business ideas. Incubators have been used for many years in the science and engineering fields, as pooled resources can massively reduce R&D costs. In Manchester, venturespace (www.venturespace.co.uk) provide a superb incubation environment and support many types of organisation.

Banks:
Given that banks are in the business of money…. People often ignore their suitability for raising finance for business ideas. Most of the major banks have special divisions dedicated to start-up businesses, and financing companies. Banks also frequently provide the necessary support to provide the legal and regulatory framework you need for your idea!

Legal & Accounts Firms:
Again, often ignored are the networks of legal and accounting practices with regards to starting business. They play crucial roles in any firm, and most firms have access to investors, investment markets, and can provide the necessary advice you need to start your company. In MANY cases I have been involved with, legal and accounting firms have also given the necessary impetus and entrepreneurial push to really take ideas forward often taking a stake themselves and raising the capital for the idea to become a success.

Government:
Local authorities, and central government are always keen to encourage people to start-up in business, and provide excellent networks to facilitate this. Depending on the industry you are getting involved in, there will also be a host of grants and other benefits/support available to make the process easier. If you contact your local chamber of commerce, their advisors will be able to assess your idea, and give you the right contact. Grants are particularly available to those involving themselves in media, arts, and sciences.

It’s important to note, though, that even with all of these frameworks available to you to raise money, the onus is always on you as an entrepreneur to understand your business and its cash needs both at day 0, and on an ongoing basis. Unless you thoroughly understand this, your business is not geared for success, again, this is one of the areas where incubators, accounts firms and their contemporaries succeed, as they provide you the knowledge and training in accounting, book-keeping and so forth which you will need to get a grip on your finances….

To finish, though, I would like to quote activist Marian Wright Edelman, who once spoke of money thusly…

“Never work just for money or for power. They won't save your soul or help you sleep at night.”

Click to read full article...