Has Canada missed the boat in Asia asks Gordon Perchthold, Ivey Business School HK

Great marketing is whipping the puck up the ice on a power play – at least every now and then. Someone I respect (his book is probably the best on consulting) is Gordon Perchthold.  He is in Hong Kong and The RFP Company helps companies enter Asia rapidly. He knows how Vietnam differs from Korea and where to focus scarce resources.

Gordon is nimble minded and has helped many companies get over their fear of the dragon. Gordon set up a debate with Ivey Business School in Hong Kong to discuss “Canada has Missed the Boat to Asia.” We held the same debate in Toronto and Gordon was kind enough to include me. My son attended and told me I overdid the debate style of picking on my opponents!

But I did get to study Asia and speak to many business owners about their experience in this massive country and it has added to my strategic focus. This change may bake a huge difference for me in marketing to a massive client in Vancouver. I had not included Asia!

I had to debate why Canada has not missed the boat in Asia (and especially China)...

Here are a few points:

·         Commodities are fungible so any upward effect China has had on the price of say oil or lumber has benefitted Canada regardless

·         Canada has welcomed Chinese investment (arguably more so than Australian! c.f. Athabaska vs. Potash!)

·         Canada has redirected exports away from “Due South” to across the Pacific (energy, lumber, food, minerals, fish, potash)

·         Canada has “benefited” via a stronger C$, one of the world’s leading commodity currencies. China has contributed to the C$’s strength.

If Canada has missed the boat, it is probably because its corporates have not been as active as they could have been. But has not RBC always been Li Ka Shing’s lead bank forever? BMO is seen to be  close to the Chinese hearts. And RIM and Bombardier are doing well in Asia, aren’t they?

Canada’s Asian community has also ensured a close connection viz. Honkouver!

Truth to tell, best argument is the counter factual: it is hard to think of much more Canada could have done that it has not already done!

Private equity also doing debt for the Dividends cash flow

There used to be a time, during what some called the Great Recession, that American Capital, one of the oldest American based “business development companies” BDC, was struggling amid a stock market slump and a liquidity crunch. It wasn’t pretty.

Fast forward to today, American Capital’s woes from the past didn’t seem to deter any latecomer to the business development company game. More than 20 companies have filed to launch new American BDCs over the past 12 months, compared with a trickle of such filings in 2008 and 2009.

Investors are hungry for yield, and BDCs provide that thanks to their quarterly dividends.

“There are few alternatives to high-yield products, and BDCs provide an attractive option,” said Steven Boehm, a senior partner of law firm Sutherland Asbill & Brennan LLP that specializes in structuring and advising BDCs. “It’s a sexy product.”

Equally seductive is the prospect of having a permanent source of capital, a dream of private equity firms that dread the distraction and cost of raising private funds.

But the commonality of the new BDC hopefuls and their older brethren stops here. The younger crop looks a lot different. For one, it promises to use less leverage in their investment – a lesson well learned from American Capital’s problems. (American Capital itself has learned, too –  Wilkus said recently that “it became evident during the recession that we were overleveraged, considering our asset mix,” and “we intend never to repeat that.”)

In another difference, many of the new BDCs plan to buy debt as opposed to equity in midmarket companies, which certainly would help their dividend-paying ability.

4 reasons to think twice before "doing what you love."

A Rotman lecture by Danial Pink, author of Drive, is available on iTunes "BigIdeas" podcasts, and as I listened to him late at night this week, I mulled over his push for people to work in jobs that they love. 

Pink went to law school and dropped out of the whole, restrictive, boring law career. He says, "Law school was the worst thing I did." 

Yet, I listened to him because I know he went to law school, is able to express himself logically and is not a delusional, "just say what you want and it will happen" expert type. I can understand why people love his point about doing what you love, but life is tough and gets in the way. My business just signed up with a superb business owner to help him transition his business. We spent 18 months working with him and his wife to show how our company will help his family business achieve the wealth he needs to retire. 

Was I doing what I love? Not totally. I hate negotiating the engagement. I hate discussing the amount of debt and family shares owed. I hate picking up the check for our work fee - I find that awkward. But I do it. I have to ask for the job, go through the value and why our fee is fair, explain the engagement letter, pass it back and forth with a hundred changes, get his signature and ask for the check to start work. I hate that but as a small business owner, I had better be very good at this detail and arm wrestling because it is what sets us apart. Besides the work I love to do, if I want to be successful as a business owner, I had better be good at those skills my MBA taught to me and believe me, that was not painless either.

Once I am through that sales close, now, it is exciting. Persuading a family business owner to do what is in his best interest is far from what I love to do, but I know how happy this man will be within a few months once we improve his wealth situation. I know how it will improve his family relations with his sister and father. 

So here are 4 reasons not to do what you love:

1. You love it — but you're not fantastic at it. There is the 10,000 hour rule of how much you need to invest to become very good. If you do not have the body type, you will never be a ballerina. Same with intellect. The women who started up Zipcar over day care were not just thumb sucking an idea. They were both experts in transportation and engineering. How good? MIT and Harvard PhD good. Lots of women come to me with ideas for start-ups and they are passionate about green and pollution by cars, but do not have the intellectual backing to add depth. Without competence, passionate people would not get the start up funding Zipcar attracted.  It is hard to judge yourself accurately, so ask your friends and employer what your talents and weaknesses are, and then play to your strengths, even if they don't lead you to what you would currently describe as your "perfect" job.
2. You're skilled at your passion — but hate the work that surrounds it. Many businesspeople are masters at their craft but drop the ball when it comes to everything else. One of my clients is a brilliant Day Care operator who set up in-house child care for big companies. But — although she loved working closely with clients and helping them create employee benefit programs with her Day Care — she was simply unable to manage her pricing and cash flow. She had boxes of unpaid checks in her basement. It's possible to learn these skills, but, for many, the process sucks the joy out of their chosen field and small business. (Michael Gerber writes about this extensively in The E-Myth).
3. You're too emotionally attached. You've already heard about Marion Stoddart. I recently heard Charlaine Harris, author of the wildly popular vampire series that spawned the TV show True Blood, talk about this issue too. The best writers, Harris said, don't fall in love with their characters, or their words. They don't mind being edited; in fact, they're open to any suggestion that makes them better. Writers who get too close to their work and take criticism too personally never improve. As an author, I learnt that a long time ago. Your work improves with others commenting. Business people also need to look carefully at whether passion for their work is clouding their judgment. When you care deeply about a pet project, for example, it's hard to make a rational decision about whether it should live or die.
4. No one will pay for it. You can turn a hobby into a job — but only if someone's willing to pony up. Sometimes the market's just too small (luxury vacation planning for couples honeymooning in Cape Town). Sometimes the margins are too thin - decorating business targeted at Divorced Dads. And sometimes your company simply has other priorities (no matter how many times you offer to move the business into web video, your boss wants you to get your actual job done, and today please).

Another Private Equity Fund for China

Alibaba, the Chinese e-commerce company, had a nasty investigation in February. The former CEO of Alibaba, David Wei, has left and is now raising a $200 million investment fund for his new firm, Vision Knight Capital Partners, focusing on China’s red-hot e-commerce, retail and consumer goods sectors. 

And he’s teaming up with his former boss and one of China’s richest men, Jack Ma, the founder and chairman of Alibaba, which is partly owned by Yahoo Inc. Ma is providing some of the money as a limited partner. Wei says his fund will look to back deals from other investors’ portfolios in an effort to turn them around using the operating experience he gained from years spent working in China’s consumer goods industry.

What happened to having a clean track record and not being able to raise capital if there is an ongoing investigation? That is proof of the fast, expanding market that is called Asia. There is so much to gain since you are not taking market share from other companies - just filling a void.

Read More...

My book choice for your business

Business owners will suspect John Warrillow has followed them around with a video camera as he describes
how the typical service business operates and what needs to change to improve the dollar value of the business. This entertaining, but very important book should be at the top of the reading list for any business owner of a service company. The suggested steps and easy tweaks to current practices will add a substantial increase in valuation for a service company. Entrepreneurs will be surprised at how much Built to Sell will add to building a stronger business and appreciate the knowledge gained when it does come to time to sell.

For John Warrillow

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Mobile: (33) 06 40 36 61 42

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Good private equity funds still attract large investments

Some private equity firms may be having problems fund-raising but don't tell that to Berkshire Partners.

The eighth fund of the Boston-based firm is clocking in at $4 billion, three sources said. Berkshire Partners, which only began fund-raising in late January, is expected to announce a first close in the next week, a source said.

A final close for Berkshire Fund VIII LP is seen coming 60 days after. "There was massive interest," a second source said. "This is one of the must-have funds of 2011."

The firm's prior fund, Berkshire Fund VII LP, closed at $3.1 billion in 2006. The one before that collected $1.7 billion in 2002. Fund VII had generated a net IRR of 6.9 percent as of September 30 for backer California Public Employees' Retirement System, while the sixth fund had produced a net IRR of 23.2 percent.

Berkshire Partners, which pursues leveraged buyouts, growth capital deals, take-privates and related transactions, typically invests between $50 million to $500 million equity per deal. Sectors of interest include consumer products, retailing, business services, transportation, energy as well as manufacturing and communications.

Last week, Berkshire Partners recapped Engineering Solutions & Products, a government services provider. In January the firm teamed up with Rhone to make a minority investment in Coty, the beauty company.

While private equity fund-raising is rebounding this year, firms have been taking longer to close their funds. The Gores Group took about 18 months to collect its third fund, which came in at $2 billion. EnCap Investments spent an estimated nine to 10 months raising $3.5 billion for its eighth upstream energy fund.

Watch how you present yourself to Finance types

Teaching Growth at Rotman University, to the top entrepreneurs of Canada is a privilege and I enjoy it greatly. Yet, I was stunned when one of the $3M revenue business owners chatted with me.

“I have to get some money. How do I get some money?” that was the opening sentence to me. She put on a cute, begging face – my kids used to do that to me when they wanted to go to MacDonalds and get the kiddie meal with a toy. 

She said, “I am so disappointed with the banks and BDC, they will not give me a loan. I have been a client of theirs for years; I wrote them a letter giving them a piece of my mind. What do I do with finance people like that who just do not get it?”

I was exhausted before we even began. 

This business owner had a copy of my book, Money Magnet, on the desk in front of her, yet had not flicked through it before speaking with me. Even one page would have given her more of a clue how to connect to finance people. For her, it was all about her and this ghastly situation for her. She may have realized that her company was actually attractive to Angels as she has good cash flow. She is also passionate about what she does. Double points.

Business owners talk like this to finance people who have access to a great  network of potential investors. This owner had given me a huge message about her style. Why would I put Loewen Partners' reputation on the line by making a call? If I did that favour, pretty soon, no one would pick up my phone calls. I asked her if she had a business plan. Nope. An income statement - maybe. OK, now we were making positive inroads.

As I probed, I could see she had a viable business and would be attractive to the right fit of investor. Since I work with $20M revenue companies and up, she was too much of a "can you do it for me?" type, for me to make any revenues and she would be too tough to mentor. I doubt she would ever touch my book again.

 Pass!

Instead, she could have opened with a few sentences (after describing her revenues and market) that would have caught my attention. Any of these would have made me see she had built and sustained a good business. Any of these door openers would have kept the conversation flowing because they are positive and business smart:

Conversation Openers with Finance Experts

1.      I have a great Business Model – We do loans for plastic surgery and I have been in business since 1998 and been profitable every year with strong cash flow. Our business has grown by 20% each year.

2.      We have a stunning Revenue Model – we have Margins of 60%. With another $200,000, I can add 2 more sales reps which drives the growth. I am looking for an Angel interested in financial services, near to Markham.

3.      There is Competition, like credit cards or the banks.

4.      Key Differentiating Feature – we have close links to the top 10% of plastic surgeons. So we make sure the client goes to good surgeon who also gives us a good price.

5.      Unique Selling Proposition- Secret Sauce – we are niched, focussed on plastic surgery.

6.      Addressable market – Can give the plastic surgeons a referral fee to advertise us on their websites and draw in clients.

BNN The Pitch - 5 Typical Questions

"Before I go on The Pitch," says Jacoline Loewen, "I get a one page outline about the company that is seeking the capital.  This brief summary will sprinkle clues throughout the description about how ready the owner is to get financial investment dollars. Typically, I like to give the outline a run through my standard framework which I detail in my book, Money Magnet."

As a business owner, you could discuss these at your next business meeting with your team. Try one question a week and you are now doing strategy extremely well:

6 Questions to Grow Your Business

1.     What has changed in our industry (e.g. impact of Asia) and why is it now the time for a company like ours?

2      How are we different from the competition - our processes, our product?

4.     How is our customers' environment changing and what new pain does it bring? 
     Are we focussed on how our company is stepping in to help soothe that pain?

5.     Will this pain be enough to get customers to switch to our offering?

6.

The Pitch

thepitch@bnn.ca

The Pitch is an exciting new weekly show from Business News Network that hooks up Canadian entrepreneurs with the risk capitalists who are sitting on the real money... the money that brings ideas to life.  During the program, start-up entrepreneurs or companies seeking to take their business to the next level will sell their business idea - and the amount of cash needed - to a panel of tough financiers and experts.  The panelists will either give the pitch the green light or send the dreamers back to the drawing board.  It's a fast-paced half-hour hosted by BNN's Andrew Bell. And it's 100% live, giving viewers a chance to see how the entrepreneurs perform in a high-pressure atmosphere.

Wednesdays at 11:30 a.m. ET / 8:30 a.m. PT

Join the Debate - Canada Has Missed the Boat to Asia

What's happening - Ivey Debates: Canada Has Missed the Boat in Asia on Tuesday, May 3, 2011, 6 to 8:30 p.m. at First Canadian Place Gallery, 100 King St West, Street Level, Toronto

What we provide - Debate of the Year between a CTV anchor, a financier, a corporate strategy officer and a management consultant with Ivey Asia Dean/ Former Sun Life China CEO as the moderator. It is an event to be filled with great insights, business opportunities and funny comments! 

What you need to prepare - Sharp questions, healthy appetite (for drinks and hors d'oeurves) and a mood for networking with high profile alumni!

Ivey Debates: Canada Has Missed the Boat in Asia, a question raised by Dean Kathleen Slaughter's November 2nd statement in the Global & Mail newspaper: "Canada Has Missed The Boat in Asia."

Featuring:

• Andrea Mandel-Campbell, CTV Anchor, Journalist and Author of 'Why Mexicans Don't Drink Molson'
• Jacoline Loewen, Partner, Loewen & Partners Inc, panellist on BNN The Pitch, author of Money Magnet: Attracting Growth Capital to Your Business
• Dev Srinivasan, Vice President Strategic Initiatives for Capital Markets, BMO and Ivey 2010 Emerging Leaders Award Recipient
• Gordon Perchthold, Managing Partner, The RFP Company
• Moderator: Janet De Silva, Dean of Ivey Asia and Former Sun Life China CEO

Are Canadian corporations soft, complacent and overly protected or have the examples of Bombardier, Manulife, and RIM demonstrated that Canada can effectively compete in fast paced, high growth Asia?

Registration

• IAAT Supporter*: $20 ($22.60 HST)
• Current Students and Recent Grads (2010/2011)**: $20 ($22.60 HST)
• Renew for or become an IAAT Support and attend this event - for alumni who graduated in 2009 or before: $70 ($79.10 with HST)
• Renew or become an IAAT Support and attend this event - for alumni who graduated in 2010 or after: $50 ($56.50 with HST)
• Ivey Alumni: $40 ($45.20 with HST)
• Non-Alumni: $50 ($56.50 with HST)

* Find out more about IAAT's Supporter program by going to http://iveynetwork.ca/toronto/supporterprogram/

Strategy planning process keeps the business going

"A Business Plan," is a very broad idea. 
When I ran the strategy process in a big business, I did several plan-budget things every year from department to division to business unit. In one sense these were all a lot of hooey - the ink would still be soft when the first 15% was being changed. Some of that was stupidity but as it turns out, most of it is what "planning is all about. The planning success was the process because it kept everyone focussed on who is the target client, what do they want to see and how could you help them do their work better. The quick analysis done around what was the business offering that competitors could not, is almost a subconscious check on getting done the essentials to delight the customer.
In a finance business I have worked with for the past 16 years, I look back on its strategy-the early plans-and remembered how I did have to force the managers to go through a strategy process. At the time, some entrepreneurial types laughed at their irrelevance.  
"What did it matter to know we were not trying to be everything to all people?"
"What is the point of having three objectives to achieve this year?" "And how can you set just three that apply to everyone?"
The strategy process chewed over the amount of money they needed to keep in their piggy bank to ensure survival through the black swans. Back then, the governments were dropping the level of reserves required and there was political pressure to not red ink "no lend zones" for real estate. The bank was accused of not wanting to do deals as they refused to do the derivatives and swaps every other bank was now allowed to do with the reduced legislation.
Although they grossly mis-timed and mis-sized the recession, recovery is strongly underway. When I recently hosted the head strategist for this bank which is now global, he talked about the discipline of having a formal, tough process of doing a one page plan even. The process is what made the company conversation keep going back to sanity during the go-go years. He said to me that those old, goofy plans are priceless.
I wrote a book called The Power of Strategy about the process I used. It became a best seller and is still available on Amazon.