Entrepreneurs have set skills for a set size of business

Terry Matthews is quoted in Report on Business magazine, "I'm increasingly convinced that being an entrepreneur-the first time-is circumstantial. But being a serial entrepreneur is something that I truly believe is deep-rooted in the individual." Terry goes on to explain that the start up stage involves a whoel different set of skills to once the company has matured and is running with set systems.
My book, Money Magnet, spends a whole chapter taking business owners though the concept that their skills which got them to where they are may not be the skills they need to take the company to the next stage of growth - hence, invite in private equity partners. Visit my book's website for a free download of this chapter. http//www.moneymagnetbook.ca
Terry is with Celtic House, one of the top funds for IT companies who are also featured in Money Magnet.

Walking Away from a $3 Billion Deal

Interesting article in the Harvard Business Review online about ABRY, a media-focused private equity firm started in 1989 whose partners managed to raise way more money for their latest fund than initially planned.
What would you do?
John Loewen says, "As you know, partners receive fees for the cash managed and that brings a huge issue of taking this money while knowing you perhaps may not be able to place the money."
This article and case study takes you through the moral points and how they were navigated by this fund - which was ethically prudent.
Now how about the media headlining this story of private equity walking away from a money-for-jam situation?
Nope, not that interesting beacuse no heads rolling or blood letting.

Western Downward Drift and the Olympics

Welcome to guest blogger: Dr Michael Power - Investec Bank:

For the marketing and the sheer entertainment value - the Beijing Olympics exceeded even the advanced hype. But, as the images fade, we should remember that this contest was not the only one of Olympian proportions to be playing out in the world at the time. There is also an economic marathon taking place between runners in the West and those in the East, a national relay race that will eventually see the baton of economic primacy being carried – symbolically having been dropped by the US Team in the 4x100m relay race in Beijing – by China. The final medal table of the Beijing Olympics may yet come to symbolise the start of this hand-over process.

Many in the West probably still think – and the lazy love of the familiar more than brute logic is often the father of their thoughts – that the West’s current economic malaise is nothing more than a very bad case of cyclical flu. In such a context, aspiring Western politicians will continue to peddle promises to build a better tomorrow: witness Barack Obama and his “Yes, we can!” pledge. By contrast, few will dare articulate just how structurally passé the West’s current model might soon be and therefore just how difficult delivering on those electoral promises could become.

Final Medals Tally Total:
China 100
United States 110
Russian Federation 72
Australia 46
Korea 31

Canada 14

Overriding the forebodings of that small clique of Westerners not in denial, the ‘yes we can’ apologists for the West still dominate the airwaves of CNBC and Bloomberg. Those daring to suggest that something more seminal might be happening are usually dismissed as the economic equivalent of doomsday merchants wearing “End is Nigh” sandwich boards.

I believe profoundly that the essence of what makes mankind such an optimistic species is our dogged faith in the idea of “hope springs eternal”: indeed Obama’s book captures this determination in its title, “The Audacity of Hope”. For it is humanity’s pre-disposition to dream of a better tomorrow that is the source of that river of human endeavour that irrigates the seeds of a brighter future. And so powerful can be this flow of sweaty optimism, it can cut valleys through granite mountains of counter-logic in forcing its way towards the greener pastures of progress. But hope alone cannot guarantee progress and the wellspring of industriousness that feeds the West’s river is not nearly as plentiful as it used to be. Instead, today’s sweaty optimism rises most abundantly where the sun also rises: in the East.

In this game-changing world, a few commentators – George Soros, Marc Faber and Jim Rogers – have suggested that the West is in its worst financial crisis in 30 years precisely because the economic baton is being passed from West to East. As the great economist, Joseph Schumpeter, might have noted, perhaps we are at a crossroads in history where Western destruction is now being offset by Eastern creation. In our far from decoupled world, the West’s economic yin cannot change without impacting the East’s economic yang, and vice versa.

On the one side, the West (and especially its Anglo Saxon heart), by living way beyond its means on the chimera of easily available credit, ever rising household indebtedness and ever increasing fiscal and current account deficits, has enjoyed many decades of prosperity. And, even in the wake of the credit crunch, most Westerners still believe that this model of prosperity is both soundly-based and sustainable. The last year has proved to us it is not.

On the other side, the East (and especially its Chinese heart), by living well within its means with a high domestic savings ratio (45% in China compared to a negative rate in the US), regularly running current account surpluses and maintaining high levels of foreign exchange reserves (the Greater China Club – China, Hong Kong, Taiwan and Singapore – now have over $2.5 trillion) has deferred consumption today and, by funding investments from these savings, set about building a better tomorrow. At the same time, a not insignificant portion of the East’s savings have also been diverted to plug that savings gap in the West and especially in the US.

By postponing consumption for well over a decade, the East’s hoped for tomorrow has now started to materialise in a better today – Beijing’s splendour is evidence of that! And despite the desire by some of the East’s Old Guard to extend its era of abstinence, many Asian governments are now encouraging their constituents to enjoy a bigger share of the fruits of yesterday’s labours. This suggests that the Asian model – one based not upon self indulgence but rather self denial – was ultimately not sustainable either.

Dragons' Den recommends Money Magnet

CBC is kindly featuring Money Magnet on their blog for the terrific reality show - Dragons' Den.
As you know, I have written about the show in this blog and have included a special section in Money Magnet for the contestants.
For those entrepreneurs interested in braving the Dragons' hot breath in order to fund their companies, I have covered off the questions the Dragons want answered before opening up their cheque books.
There is also a summary of the winner of CBC's competition, Trent Kitsch, and his perceptions of raising money before and after Dragons' Den.
If you are a business owner and are contemplating how to grow your business, do pick up a copy of Money Magnet as it will change your perspective on what is possible.
Do not rely on traditional banking for your business because it is just like smoking - it stunts your growth.

How financial tools destroy your capacity to do things

A recent HBR article from January 2008 Harvard Business Review has a provocative piece by innovation guru Clay Christensen and a couple of colleagues called "Innovation Killers: How financial tools destroy your capacity to do new things." I have the greatest of respect for Clay Christenson who does hit the nail on the head every time with his analysis of business. His critique of the limitations of DCF analysis is applicable to private equity deals, hence my interest.
Since my MBA and time at Deloitte, I have always been skeptical toward financial analysis and the reverence to which it is held.
While DCF analysis has its place, its limitations should be recognized. One problem is that fact that most DCF models are built on status quo assumptions (or growth projections) that don't account for the strategic and competitive curve balls. I would add that there is also the issue of garbage-in, garbage-out: the less you know about what's likely to happen (as is the case with new lines of business), the less reliable the output of your DCF model becomes.
I see the problem to be that instead of acknowledging this limitation, many finance geeks embrace the modeled output as Holy Writ. Besides being a false data crutch, it squeezes out consideration of other "softer" factors (like my favourite - non-quantifiable synergies)that are every bit as worthy of consideration. Pick up my book, Money Magnet, which deals with all of this in far greater detail.

War and Private Equity

Last week, Private Equity Hub's Dan Primack interviewed Michael Bleyzer, CEO of Ukrainian-based private equity firm SigmaBleyzer, to discuss the impact of the conflict in Georgia.  Though Mr. Bleyzer admits that the Georgian market has not drawn much of his interest, he does point out that an aggressive Russia cultivates politically-driven volatility in the large country that remains unattractive to him.  Naturally, he advises to stay away from sectors vulnerable to political or oligarchical influence, (i.e. energy, defense, etc.).  British Petroleum can attest to this, of course.  However, he does mention that though the "Bear" may be winning the fight to expand its regional sphere of influence, this is raising moral considerations for investors when considering to put their money in the country.

These sentiments do contradict reports from big institutional investors, such as Credit Suisse, on Russia (a member of the famous BRIC nations) but it is difficult to argue with a professional that is "in-country", operating in the region, looking to make returns from the best risk/return opportunities.

Private Equity Update

Banks have been in fashion for some time now.  A rare thing.  Papers are filled with glamourous headlines announcing the latest billion dollar "Writedown" or "Loss".   A year ago it was billion dollar "Deals".  It would seem that the bank's cousin, private equity funds, is also suffering from the same bad press.  Many in the newspaper business are assuming that because of the lack of credit, private equity is at a stand-still, licking its wounds from failed projects. This is not true.  

Private Equity's strength is its versatility.  As the banks began shutting the door to LBOs in late 2007 and selling debt at a discount to shore-up some cash, private equity funds abruptly changed course and bought much of that debt, and continues to do so today.  

Currently, some of the most activity is focused on infrastructure.  Around the globe, 71 funds are raising US$90.8 billion to invest specifically in infrastructure, a particularly stable investment with steady cash flows.  Private equity professionals are looking to outmaneuver any market volatility by preparing to support the CAD$150-billion that must be invested over the next 20 years to meet Canada's growing demand for electricity.  

It would seem, then, that the industry of private equity is never so much under attack as it is remobilizing and assessing new fronts of opportunity.  The only thing that is permanent now for these bankers and fund managers is having to cope with being splashed all over the front pages.  If David Rubenstein is any indication, it seems they will be able to adjust to this as well.

Don’t only hire the top students

In a recent article, MacLean’s magazine threw a stone in the waters of education with a story about C students who grow up to become captains of industry (or Presidents of the USA.)
According to the senior president of a top Canadian bank, head-hunting only top students can be limiting. “During my Masters program, the academic superstars loved working on the sheer beauty of a math simulation, but people like that are a better fit in research and can add much more in that role.”
According to John Loewen of Loewen & Partners, "To move beyond the mechanical stage of corporate finance you need to be smart enough to create the product, but you must be able to communicate your ideas to your peers, team manager and larger groups. If you get into a boardroom and freeze in the headlights, then you will stay at the product level. I would much rather hire an interesting, energetic person than have the whole team be top graduates. I look at the drive of the person."
To rise to leadership roles, you need the energy to create a long-term relationship with clients; to get them to reach into their pocket and pay you cash for your technical skills and ideas. This client-cash transaction is the toughest part of business, one that most working Canadians do not do if they work in research, government, marketing or a team supporting the actual rain makers. A cold, naked, money focus is the life blood of a business, yet few can do it. It is done by those with resilience and that means high EQ (emotional intelligence) and as Jacoline Loewen, author of Money Magnet, points out - those with resilience get to raise capital to grow their companies.
The owner of a fund, Richard Wernham, filled his entry level jobs with only the top academic students from universities. After a few years, he noticed a disturbing trend: although these bright sparks could do the complex work assigned, they did not take risks, try fresh ideas or push for change. Without this creative tension the business was not evolving. When the fund owner sat down with his senior team and analyzed the reasons, he threw out their hiring criteria and began again. Sure, they wanted recruits who could handle the technical work but they also needed the self confidence to tackle incoming problems in new ways. The traditional “learner” may not have the inner rebel required to challenge the way things get done.
“The trouble with a top student is that they have bought into the system” says the management guru Tom Peters. “Crazy is the friend of innovation. Your people need to question the boss and speak up.”
Richard Wernham put his money behind his recruiting philosophy by starting a school with the vision of educating children to grow into well rounded, confident adults and leaders of tomorrow. Part of the curriculum is to spend time camping and canoeing in the Canadian North. There, it’s the great equalizer as children step away from the comfort zone of Lululemon identity brands to pitch tents, paddle canoes, swim in murky lakes, swat mosquitoes but most important of all, sharpen up those EQ skills with fellow campers. It is the quintessential Canadian cultural rite of passage – singing songs around camp fires with your mouth full of smores and burnt marshmallow.
Immigrant parents, new to Canada keen to see their children become leaders in Canadian business are strongly advised to pack off their children to summer camp - even the day camps - and watch the growth in their children. They will absorb Canadian values of taking personal risks but with awareness and co-operating within the group, not just working for their own achievement.
So parents concerned that little Jill or Sarah is not number one in the class, take a chill-pill and get her booked into a camp for next summer. Broaden her character and who knows where she will lead.

Are You Being Crowded Out?

Canadian business owners are realizing that the world is indeed flat and that no matter how much they try to ignore other competitors, it is getting tougher, meaner and just not as nice out there.

What to do?

"If you are a business owner," says Jacoline Loewen, author of Money Magnet, "There are so many more options for you. It's not all bad." One of these is to take on private equity partners who can see if your competitive pool is too crowded and it's time to find a new spot. These partners are not just lending you money, they are actually partners too and have an incentive for your to grow the business, not just pay back the loan.

Is Social Networking Over-Hyped?

It seems as though every second start-up business is about social networking.
Is it over-hyped?
Is it like a movie with famous faces but no plot?
Just remember, high tech has always been over-hyped, whether for cars, phones or electricity, the Internet, or the current new bubbles of alternative energy and climate change.
As discussed in the new book on private equity, Money Magnet, companies put their business plan together, obtain funding from venture capitalists, open an office, and hire engineers and PR types. They talk up their technology and hope that the Bay Street analysts will declare the new product a world-changer.
"The technology for social networking is just beginning," says John Loewen of Loewen & Partners. "It will be a world changer. No longer just for swapping music files or photos, business people are using social networking to market and communicate."
Just as Nicholas Negroponte predicted in his 1995 best seller, Being Digital, the three separate industries of computers, broadcasting and publishing have merged. Imagine a Venn diagram, which Negroponte describes as three teething rings – the interactive world, the entertainment world, and the information world. The convergence of these three giants – who had power comparable to Soviet-controlled industries – changed how decisions are made regarding who gets published and what gets broadcast. The impact on society has been extraordinary.
To access this ocean of information, we are all hooked into a giant grid by means of various devices – iPhone, Blackberry, laptop, car navigation system or TV. It gives us marketing, entertainment, business access, our child’s latest school marks and social connections to school pals from thirty years ago. Technology does determine the future of the human race but as we have learned over the course of history, the social bits around the technology are more critical.
“To control or not to control?” is the question asked by parents watching what appears to be the slothful, antisocial behaviour of their online children or by anxious employers eyeing their staff online during work hours. Yet this social networking allows staff to play, explore, take journeys far from the office and bring back useful nuggets for your next marketing piece or customer sales presentation. Merging your soft (people) with the hard (technology) is good business and if you are worried, remember, the more you use the reins, the less they’ll use their brains. China has developed MBA schools to teach these soft skills, encouraging employees to think for themselves. Xiang Bing, Dean of the Cheung Kong Graduate School of Business, talks about the hard-working ethics of the Chinese and their excellent technology but also points out the challenge of further developing their soft skills.
Less democratic governments are anxious about social networking. Many are trying to control this sharing of ideas and have convinced Google to co-operate in censoring online access to content. Thank heavens Canada seems to have more confidence in the ability of its people to maintain harmony despite the blogging of nutjobs or hate-mongers.
Are people sitting inside their four walls connected to this giant grid but not getting outside to meet real people? Yes, but they are also meeting others from far away neighborhoods that they will never visit and they can read blogs by people with radically different political views. All of this may raise their blood pressure but it surely develops mutual understanding. These online journeys and conversations are teaching people more about social interaction and how to argue a point. Up until now, fake personas and fake names have been used by many online people and anonymity - not owning your own words - is one of the biggest contributors to the rudeness on comment sections of blogs. It seems that people have forgotten their manners (I’m being kind here in assuming they had them in the first place); they quickly move off the debate topic and resort to name calling: “Gawd, Joey99, how do you put your pants on in the morning?”

I am still waiting for the business version of YouTube with real names only, so we can do without the juveniles and can we get some grown up brand names while we are at it? Saying Twitter, Dig this or Bebo makes me laugh!

Absolutely, social networking is a great journey, but do keep your real life. My sons have assigned me a “technology hour” when I’m at home so that I don’t bury myself in blogs. It seems they understand this technology thing better than I do

The Secret to a Great Board Meeting

It’s eat lunch or get eaten for lunch and in this dog-eat-dog world company owners need an edge. Setting up your own advisory board can be a powerful boost to your company performance but the challenge is enticing these senior business experts to show up at your meetings repeatedly, not just for the one time. Besides setting a well-timed agenda, the biggest secret to running a successful board meeting is the food.
It is extraordinary how people bond over the sharing of an interesting meal. Somehow, the breaking of bread gets people to relax and know each other better. Think of a dinner party you attended with like-minded people and how you came away inspired by the conversation. The food probably was good, setting a caring atmosphere. Look at Harry Potter eating weird, vomit flavoured candy with his newly made friends on the train to Hogwarts. What about the Klingons sitting down to dinner on the starship Enterprise with Captain Kirk, eating their foul food with their mouths wide open while claiming that Shakespeare stole all those plays from them? OK, maybe that didn’t go as well, but you get the point. Food is a shared experience which can add sparkle to an otherwise tedious event.
For your advisory board meeting, there is no need to order in pizza or soggy sandwich wraps. That signals tired ideas and soggy thinking. Get out of the box and head over to Pusitarri's, Soby’s or Loblaw's where you can purchase pre-made snacks which are delicious and different from the usual business fare. Mark McEwan, Chef Proprietaire of North 44, is opening up a ready-to-go-meals store in Toronto at Bayview and York Mills which will be terrific incentive to attend after-five meetings. Check out web sites, such as Canadian Living with Elizabeth Baird, to glean ideas of simple but unique platters of finger foods. The goal is to keep it simple but make your advisory board think they are on the dock at Muskoka watching the sunset while enjoying the company of good people.
Be sensible. An overly lavish spread may raise eyebrows, causing your board members to silently wonder if you are developing an Enron style of entertaining with the budget to match. The recent G8 summit held in Japan received criticism for the eight course banquet put on for the country leaders and wives by the Japanese leader but given at a time of food shortages around the world. Point taken. But does the G8 meal really symbolize a “let them eat cake” attitude to the poorer people in the world? Are any of those G8 leaders supping on rice wrapped in seaweed also deliberately starving their citizens? Let’s compare the G8 leadership of their populations with Bob Mugabe’s treatment of the people of his nation, the beleagured Zimbabwe. He has managed to take Africa’s bread basket and crush it to a smoldering wreck. Yet Bob managed to snag a free trip to the United Nations’ Food Conference held in Rome. He deserves a quick trip to the guillotine for that callous attitude, along with whoever issued the invitation.
Peter Handal, the head of Dale Carnegie, suggests that setting up the meal at your important meeting as a buffet because people are not stuck in their seats from the start. Not only does this keep everyone fresh, but they can network more with each other. If you plan a little in advance, your advisory board meeting could turn out to be the most valuable meal this year.