Exempt market dealers struggling with compliance obligations

As the exempt market continues to come under regulatory scrutiny, dealers are being urged to ensure their suitability, marketing and other compliance practices are up to standard.

At the Strategy Institute's Registrant Regulation Compliance Strategies Summit in Toronto on Wednesday, regulators said they're heavily focused on ensuring exempt market players are familiar with, and complying with, the applicable regulations.

"We're trying to understand our exempt market. We're also trying to bring into registration those who should be registered," said Mark French, manager of regulation and compliance in the capital markets regulation division of the British Columbia Securities Commission. "We're going to be doing a lot of compliance outreach work, visiting these firms, doing what we call inspections – limited scope examinations."

Added French: "where we see risk, we'll take action."

Prema Thiele, partner at Borden Ladner Gervais, LLP, said exempt market dealers which haven't yet been audited will likely be contacted by regulators in the months ahead.  "There's a lot of emphasis on the compliance side," she said.

Exempt market dealers have been struggling to keep up with the ongoing regulatory changes that have been taking place since National Instrument 31-103 came into effect in 2009, according to David Gilkes, director of the Exempt Market Dealers Association and president of North Star Compliance & Regulatory Solutions Inc. He said there have been 10 regulatory staff notices, amendments and proposed rules affecting exempt market dealers since 2009.

"It is hard for people to keep in touch," said Gilkes. "I'm hoping that the regulators will appreciate how much is being pushed onto dealers at this time."

It's been particularly challenging for new registrants in the exempt market, which had to register for the first time in 2009 under NI 31-103, said Geoffrey Ritchie, executive director of the EMDA. "They're struggling to understand their compliance obligations," he said.

Regulators have identified plenty of compliance deficiencies at the exempt market dealers they've reviewed. Suitability has been a particularly problematic area, since many exempt market products are illiquid and considered to be risky. The onus is on the dealing rep to prove that the product is suitable for a particular client, given their risk tolerance and time horizon.

"You've got to think about liquidity as part of your suitability requirement," said Gilkes.

Regulators find that many dealing reps fail to appropriately document conversations about suitability.

"A lot of times we don't see the documentation of these discussions anywhere," said Janice Leung, lead securities examiner at the BCSC. "We're looking for stronger and clearer evidence that that's being carried out."

Marketing is another area where regulators commonly identify deficiencies in the exempt market. "It's a top of mind issue," said Ian Pember, chief operating officer and senior vice president of administration and compliance at Hillsdale Investment Management.

Specifically, Pember said regulators often find exempt market players using exaggerated or unsubstantiated claims on their websites, pamphlets and other marketing materials. 

"Unless you can point to some third party source to back it up, you just can't use it," he said.

Since many of these compliance requirements represent new territory for many exempt market dealers, much education will be necessary to bring the industry up to speed, Ritchie said. He's encouraged that regulators seem to be focused on helping to educate dealers on their obligations.

"We're really into a big education phase," he said.

Exit strategy time for private equity hurts those sellers who wait

Exit strategies are mounting as Private Equity and the Baby Boomers start to sell businesses - some good revenue spinners and many more as poor revenue earners. The challenge for business owners will be to compete in such a crowded market. Getting in private equity partners as a first stage in the sales process is the smartest move for many business owners.
The Wall Street Journal elaborates:

Private-equity firms globally, with $1 trillion in uninvested assets, are under pressure not only to put capital to work in new investments but also to return capital to investors through monetizing old investments."Private-equity firms will feel pressure to unload assets in 2012," said Hugh MacArthur, head of consultant Bain & Co.'s private-equity practice. "They have been slow to return capital to investors since the downturn."Bain, which advises private-equity firms and their stakeholders, said nearly $2 trillion in assets are on firms' portfolios.

Know your "mathematical fit" to attract private equity funds

"When you do the math and understand your figures," advised financial expert Jacoline Loewen, "then you will do well in business."    Loewen, a partner with Loewen & Partners and author of Money Magnet, was talking to over 120 women business owners who were gathered together to celebrate International Women's Day.

She highlighted several successful women entrepreneurs who had not only done well in their business ventures, but sold them for millions and encouraged the women in the audience to think big, to believe in themselves and pursue growth. (You can see Jacoline Loewen's presentation at the Exempt Market Dealers Association website here. Scroll down.)

And the panel of women entrepreneurs who followed had done just that.  There was a common theme in their stories - each had just leapt in and followed her passion, not always knowing what they didn't know, but confident that they would obtain the knowledge they needed to succeed.

Neither Chioma of AMOI magazine nor Marissa McTasney of Moxie Trades were shy about pursuing someone who could help them, and when they had successfully tracked down the right person, and won them over, it was as if the doors opened and nothing could hold them back.

Marilyn Sinclair of WordCheck and iContent, on the other hand, was a serial entrepreneur, with over four businesses to her name, including one she had recently sold.  When she reflected back on her finances, she admits that she had difficulty getting a line of credit in the early days, and that one bank had required her to have her father's signature.  As she said, had she been married at the time, likely it would have been her husband's consent that was needed.

Times have changed, but we still have a long way to go.  The first step, recommends Loewen, is to do your homework and determine the type of investor who would most suit your financial needs.  Next is to know your figures; to present yourself in a competent, warm but professional manner, and be able to articulate your unique value proposition.  She also suggested that women focus on growth, not on the actual product, as that could change.

The Honourable Brad Duguid, Minister of Economic Development and Innovation (MEDI) gave the opening remarks at Become a Money Magnet which was organized by Company of Women, EMDA, Enterprise Toronto, Microskills and WEConnect Canada, and hosted by Ernst & Young.  "We wanted to focus on women and money, because while more and more women are entering the world of entrepreneurship, their rate of growth is lower when compared to their male counterparts." shared Mary Anderson of WEConnect Canada.  "And a lack of financial literacy, confidence and knowledge of what is available are all part of the problem."

This International Women's Day event was one of 25 held across the province that was funded by MEDI. 

The Exempt Market Dealers Association was a proud organizer of International Women's Day. This is part of the strategy to reach female business owners and link them to financial expertise and sources of private equity.

If you want to improve your pitch, watch realSociable on BNN

Women pitchers can gain quick traction if they quickly demonstrate competence. Investors have now seen a long track record of women entrepreneurs who have made other people very wealthy with great business concepts. If a woman proves her business expertise quickly, she will be on the same track as male business owners.
If you want to know how to pitch to demonstrate competence and warmth, watch Dalia Asterbadi, the founder and CEO of realSociable which helps companies transform tweets and Facebook updates into useful information for sales.

Here is the Realsociable pitch on BNN The Pitch. 
Watch Real Sociable pitch on BNN.

Tips on how to give a killer pitch if you go on BNN The Pitch

Going on TV and pitching takes guts but can pay off high dividends if done well.
You can learn a great deal by watching the best pitchers. Here is Unhaggle doing a good presentation, you can see how Andrew Bell responds warmly because the business is understandable.
Also watch how the panel is very interested and questions the pitcher for deeper understanding, rather than closing down the discussion.
Watch BNN The Pitch here:

Finance can give dentistry a good reputation but it also has its wonderful side. I am preparing a presentation for International Women's Day this week and could not resist sharing some of these quotes from people who raised the money to keep themselves going:
INSPIRATION

1) "If you can dream it, you can do it." 
-Walt Disney, founder of The Walt Disney Company
2) "Business opportunities are like buses, there's always another one coming." 
-Richard Branson, founder of Virgin Enterprises
3) “Capital isn't that important in business. Experience isn't that important. You can get both of these things. What is important is ideas.” 
-Harvey Firestone, founder of Firestone Tire & Rubber Co.
4) “Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma - which is living with the results of other people’s thinking. Don’t let the noise of other’s opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.” 
-Steve Jobs, co-founder of Apple and Pixar
5) “Find your passion… then it is no longer work!” 
-L.A. Reid, co-founder of LaFace Records

TAKING INITIATIVE
6) “I had to make my own living and my own opportunity! But I made it! Don't sit down and wait for the opportunities to come. Get up and make them!" 
-Madam C.J. Walker, creator of beauty products and the first female self-made millionaire 
7) “The critical ingredient is getting off your butt and doing something. It’s as simple as that. A lot of people have ideas, but there are few who decide to do something about them now. Not tomorrow. Not next week. But today. The true entrepreneur is a doer, not a dreamer.”
-Nolan Bushnell, founder of Atari & Chuck E. Cheese’s
8) “The key is to just get on the bike, and the key to getting on the bike… is to stop thinking about ‘there are a bunch of reasons I might fall off’ and just hop on and peddle the damned thing. You can pick up a map, a tire pump, and better footwear along the way.” 
-Dick Costolo, founder of Feedburner.com
9) “The important thing is not being afraid to take a chance. Remember, the greatest failure is to not try.” 
-Debbi Fields, founder of Mrs. Fields Cookies

HARD WORK vs. LUCK
10) “Genius is 1% inspiration, and 99% perspiration.” 
-Thomas Edison, founder of General Electric (GE)
11) “I made a resolve then that I was going to amount to something if I could. And no hours, nor amount of labor, nor amount of money would deter me from giving the best that there was in me. And I have done that ever since, and I win by it. I know.” 
-Colonel Sanders, founder of KFC
12) “Nobody talks of entrepreneurship as survival, but that's exactly what it is.” 
-Anita Roddick, founder of The Body Shop
13) “Don’t ever let anyone tell you that something is too competitive. Once you subtract the people who don’t work very hard, or the people who aren’t as good as you, your competition shrinks dramatically.” 
-Maggie Mason, founder of Mighty Goods
14) “Life is really simple as far as I’m concerned. There is no luck, you work hard and study things intently. If you do that for long and hard enough you’re successful.” 
-Jason Calacanis, founder of Weblogs, Inc.

PERSEVERANCE
15) "When you reach an obstacle, turn it into an opportunity. You have the choice. You can overcome and be a winner, or you can allow it to overcome you and be a loser. The choice is yours and yours alone. Refuse to throw in the towel. Go that extra mile that failures refuse to travel. It is far better to be exhausted from success than to be rested from failure." 
-Mary Kay Ash, founder of Mary Kay Cosmetics
16) “It doesn’t matter how many times you fail. It doesn’t matter how many times you almost get it right. No one is going to know or care about your failures, and neither should you. All you have to do is learn from them and those around you because all that matters in business is that you get it right once. Then everyone can tell you how lucky you are.” 
-Mark Cuban, owner of the Dallas Mavericks, co-founder of Broadcast.com, founder of HDNet

GUIDING PRINICIPLES
17) “Entrepreneurs are risk takers, willing to roll the dice with their money or reputation on the line in support of an idea or enterprise. They willingly assume responsibility for the success or failure of a venture and are answerable for all its facets.” 
-Victor Kiam, owner of Remington Products
18) “The best reason to start an organization is to make meaning; to create a product or service to make the world a better place.” 
-Guy Kawasaki, venture capitalist, CEO of Garage Technology Ventures
19) “A friendship founded on business is a good deal better than a business founded on friendship.” 
-John D. Rockefeller, founder of Standard Oil
20) “An entrepreneur tends to bite off a little more than he can chew hoping he’ll quickly learn how to chew it.” 
-Roy Ash, co-founder of Litton Industries
21) “I've been blessed to find people who are smarter than I am, and they help me to execute the vision I have.” 
-Russell Simmons, founder of Def Jam
22) “One of the unique things we small companies have over the big guys is the ability to establish personal relationships. Big companies really can't do that. You read about effective organizations, learning organizations, lean and mean organizations, but small companies can be virtuous. We as small companies can have virtue because we as small companies are basically the embodiment of one or two people, and people can have virtue, while organizations really can't." 
-Jim Koch, founder of Boston Beer Company
23) “Experience taught me a few things. One is to listen to your gut, no matter how good something sounds on paper. The second is that you're generally better off sticking with what you know. And the third is that sometimes your best investments are the ones you don't make.” 
-Donald Trump, real estate developer
24) “High expectations are the key to everything.” 
-Sam Walton, founder of Wal-Mart

SATISFACTION
25) “I find that when you have a real interest in life and a curious life, that sleep is not the most important thing.” 
-Martha Stewart, founder of Omnimedia

 About Loewen and Partners: Since 2002, Loewen and Partners professional advisors have assisted more than 1,500 clients in launching and growing their businesses, and raising more than $1 billion in growth financing. 

• Need help with your business plan? 

• Looking to raise capital?

Speak with a finance expert today!

Jacoline Loewen can be reached at Loewen Partners.

If you want global market share, Wireless will give you clues

Resilient Strategy, more and more, must look at the wider ecosystem. There is no point pursuing services and products that require technology that is vanishing - music onto TDK cassette tapes, for example.
If you have a technology product, service or App, this presentation is a wonderfully detailed presentation showing you the market share of wireless: phones, Android, country uptake of each service provider and so much more.
It surprised me - RIM does not look very healthy...sad for Canada. Here is a snapshot of the wireless industry and it is a "cheat sheet" to the mobile space: industry ratings, trends and company overviews. .
See the presentation on Slideshare: Pegasus Strategies Wireless Overview 2012

How do you make sure your company is not like Kodak

Vegas and strategy off-sites may seem a quirky combination but it works to get your top team out of their comfort zone and having high level discussions about the forest, not just the trees.

I thought I would share one of the more interesting questions posed by Jonathan Burns at Strategy Cube, "How do you know your company is not like Kodak. The digital camera was around for so long, but they completely blew their position as a market leader in the camera market. How could they ignore digital cameras?"

RIM has a great deal of pain from their dismissal of Apple's new technologies. Yet, if you are not a shareholder, be kind. The problems of innovation, is not easy to explain. Why do leading firms like Kodak, and our dearly beloved RIM, stumble when confronting technology change? Most explanations either zero in on managerial, organizational, and cultural responses to technological change or focus on the ability of established firms to deal with radically new technology; doing the latter requires a very different set of skills from those that an established firm historically has developed. 

Both approaches, useful in explaining why some companies stumble in the face of technological change, are summarized below. There is a third theory of why good companies can fail, based upon the concept of a value network. In my humble opinion, the value network concept seems to have much greater power than the other two theories.

Here is a quick excerpt from Christensen, The Innovator's Dilemma, explaining the disk drive industry.

ORGANIZATIONAL AND MANAGERIAL EXPLANATIONS OF FAILURE

One explanation for why good companies fail points to organizational impediments as the source of the problem. While many analyses of this type stop with such simple rationales as bureaucracy, complacency, or "risk-averse" culture, come remarkably insightful studies exist in this tradition. Henderson and Clark, for example, conclude that companies' organizational structures typically facilitate component-level innovations, because most product development organizations consist of subgroups that correspond to a product's components. Such systems work very well as long as the product's fundamental architecture does not require change. But, say the authors, when architectural technology change is required, this type of structure impedes innovations that require people and groups to communicate and work together in new ways.

This notion has considerable face validity. In one incident recounted in Tracy Kidder's Pulitzer Prize-winning narrative, The Soul of a New Machine, Data General engineers developing a next-generation minicomputer intended to leapfrog the product position of Digital Equipment Corporation were allowed by a friend of one team member into his facility in the middle of the night to examine Digital's latest computer, which his company had just bought. When Tom West, Data General's project leader and a former long-time Digital employee, removed the cover of the DEC minicomputer and examined its structure, he say "Digital's organization chart in the design of the product."

Because an organization's structure and how its groups work together may have been established to facilitate the design of its dominant product, the direction of causality may ultimately reverse itself: The organization's structure and the way its groups learn to work together can then affect the way it can and cannot design new products.

CAPABILITIES AND RADICAL TECHNOLOGY AS AN EXPLANATION

In assessing blame for the failure of good companies, the distinction is sometimes made between innovations requiring very different technological capabilities, that is, so-called radical change, and those that build upon well-practiced technological capabilities, often called incremental innovations. The notion that the magnitude of the technological change relative to the companies' capabilities will determine which firms triumph after a technology invades an industry. Scholars who support this view find that established firms tend to be good at improving what they have long been good at doing, and that entrant firms seem better suited for exploiting radically new technologies, often because they import the technology into one industry from another, where they had already developed and practiced it.

Clark, for example, has reasoned that companies build the technological capabilities in a product such as an automobile hierarchically and experientially. An organization's historical choices about which technological problems it would solve and which it would avoid determine the sorts of skills and knowledge it accumulates. When optimal resolution of a product or process performance problem demands a very different set of knowledge than a firm has accumulated, it may very well stumble. The research of Tushman, Anderson, and their associates supports Clark's hypothesis. They found that firms failed when a technological change destroyed the value of competencies previously cultivated and succeeded when new technologies enhanced them.

The factors identified by these scholars undoubtedly affect the fortunes of firms confronted with new technologies. Yet the disk drive industry displays a series of anomalies accounted for by neither set of theories. Industry leaders first introduced sustaining technologies ofevery sort, including architectural and component innovations that rendered prior competencies irrelevant and made massive investments in skills and assets obsolete. Nevertheless, these same firms stumbled over technologically straightforward but disruptive changes such as the 8-inch drive.

The history of the disk drive industry, indeed, gives a very different meaning to what constitutes a radical innovation among leading, established firms. As we saw, the nature of the technology involved (components versus architecture and incremental versus radical), the magnitude of the risk, and the time horizon over which the risks needed to be taken had little relationship the patterns of leadership and followership observed. Rather, if their customers needed an innovation, the leading firms somehow mustered the resources and wherewithal to develop and adopt it. Conversely, if their customers did not want or need an innovation, these firms found it impossible to commercialize even technologically simply innovations.

50 Slides on Why Wireless is Exploding

Wireless is growing but if your company needs to know more of the details, here is a terrific presentation:
http://www.slideshare.net/bernardmoon/pegasus-strategies-wireless-overview-2012#

When accelerated growth requires capital

Additional capital would allow you to take advantage of certain strategic opportunities that you simply don't have enough cash to pursue on your own.

As an example from a private equity fund, their client was in old age care:

Senior Home Care, a Florida-based fast-growing home healthcare company facing strong demand for its services. However, to meet that demand, the owner knew that he would have to make an investment.

It would take the owner both time and money to recruit more nurses in a very tight labor market and then to train them extensively. Once his new employees were in the field, it might take a month before his company could bill for services -- and up to three months before getting paid.

To the owner, however, the opportunity was clear. He knew that hiring more nurses would generate additional profits. By taking on a private equity partner, he was able to staff up, take on new customers, and realize additional revenues -- without losing control of his business. Though in this case, Senior Home Care's growth was internal, other companies may find that acquisitions represent their best path to growth, and private equity capital can help fund these strategies as well.

4 Steps to pilot a product - part art and part science

Remember the first iPod had that spinning wheel to tip and turn? It was an incredible feature which grabbed an entirely new group of customers and if you have been reading the book on Steve Jobs, you will know he delayed the launch in order to build in this feature. So how can you bring the focus and excitement to your new products? Andrew Brown has researched a powerful article in Financial Post and here is what I liked:

Products with tremendous potential are launched too early or designed in ways that don’t capture the imagination of would-be customers.  The consequences can be severe: losing credibility with customers and exposing important points of distinction to competitors. Furthermore, such “failures” reduce the appetite to experiment and lead to adopting cumbersome processes that squash the ability to innovate rapidly.

To overcome these pitfalls, successful product innovators pilot their products. Just as with any business  process, piloting a product is part art and part science. Here are four piloting practices that consistently generate insights that lead to profitable products:

Limit the scope of the pilot. Keep the scope of the pilot focused. Leaders from every department bring their wish list of features and functionalities that they want included. The result is a product whose benefit to the end-user is buried or lost.  According to Chris Perretta, the CIO of State Street, which provides financial solutions to sophisticated institutional investors, “given the complexity of our clients’ needs, when we do pilot a product, we have laser-like focus on prioritizing features. At the same time,  we discuss with clients what is planned for future versions of our products so that they have a clear sense of immediate and upcoming features.”

Ensure quality. When customers participate in any pilot project, respect their time and candid insights by creating a positive experience.  According to Michael Wexler, VP at Radialpoint, “customers assume the reliability and quality of your pilot product reflects what your company is capable of delivering” The Montreal-based company, which provides remote technical support is constantly honing its sophisticated software. Nevertheless, according to Wexler, “When we pilot products, we only pilot those features that function at 100%.”

Choose hardcore users. One of the critical benefits of piloting products is to help companies identify faulty assumptions about current and prospective customers. 

To find out the rest, READ HERE 

Shareholders jumpy? Think Private Equity

If you are like many business owners and management teams, you may reach a crossroads where taking on capital makes sense. Business owners and management teams chose private equity to address either a business or personal objective.

When early shareholders want to diversify

Many people think about private equity solely in terms of company financing, yet it can also enhance entrepreneurs' personal financial security. That's because founders and early shareholders often hold much of their personal wealth in the company. As a result, they are wealthy on paper but don't necessarily have a diversified personal balance sheet or ready cash for large, personal expenditures. An infusion of private equity can allow founders, owners and early investors to take some of the rewards off the table, while reducing their investment risk through diversification.

Providing liquidity for early shareholders can also help entrepreneurs meet related business objectives. For example, back in 1998, the management of Keystone RV Company, a manufacturer of recreation vehicles, were concerned that they were  majority owned by a group of individual investors. The investors had provided cash at the company's start-up, but many of them wanted to exit their investment in Keystone and realize profits. At the same time, Keystone's CEO was looking for a way to provide ownership incentives to his team of key executives.

A private equity investment allowed Keystone to cash out early investors, while also establishing ownership stakes for the management team. By making managers shareholders and rewarding them for maximizing the company's value, Keystone was able to accelerate its growth rapidly after the investment. Keystone grew to become one of the leading companies in its industry and in 2001, the company was acquired by Thor Industries for more than $150 million.

The only competitive advantage is to have better people who understand the business better

*There is no 'winning strategy' that will boost your earnings. The only competitive advantage you can get is to have better people who understand the business better and who seek the future with a passion.*
 source: The power of strategy by J.Loewen


A client quoted this from one of my books. I thought it was spot on and then realized it was my book being quoted. Thank you to my client!

When to Consider Private Equity

The decision to take on private equity is a difficult decision for most business owners. Why bother with the effort and risk?
There are a variety of reasons but in my career working with business owners, I have found it generally comes down to these four reasons to look at private equity partners:
1) The founders' increased need to shore up their personal financial security, 
2) To finance further growth, or  
3) To help prepare a company for a future IPO within 3 years 
4) To prepare for partial or full sale within the next 5 years.

Becoming a Millionaire requires out-thinking the majority of people

At my finance club, I was startled to learn from one of the top fund managers of Canda that it is a small percentage of Canadians who play the stock market with over $500,000 of investment money.  To have one million of net worth is still rare. Here is a fun article from Yahoo finance on how to be a millionaire:

There's no real practical reason to ask "who wants to be a millionaire?" because the only people who won't put their hand up are religious types who've taken vows of poverty and those who are already multi-millionaires. Unfortunately, there's a big gulf between those who want it and those who do the things to make it happen. 
 Based on recent statistics on U.S. household income, millionaire-dom is not something that's going to happen for most people, even with the dubious benefits of inflation.   
A household earning the median level of income (approximately 50K) and saving an impressive 20% of that would need almost 100 years to save $1 million (excluding taxes and investment gains). It's pretty clear, then, that a would-be millionaire has to think outside the boundaries of "median" experience.

Start a Business
There are certainly people who can become millionaires by working for other people, but this is not an especially good route to choose. The trouble with trying to become a millionaire by working for other people is that there are always other people siphoning off the value of whatever you produce. Say you're a hotshot salesman – although you're going to get your cut, a lot of the value you create is going to get split among a broader pool of workers, managers and the owner(s) of the business.

Start your own business, though, and you get to decide how to divide that pie. Better still, your ownership stake can become more and more valuable over time as that business becomes larger and larger. While a good employee may get raises and promotions as his or her employer grows, they'll never see the same benefits (including the tax-free appreciation in the value of the ownership interest) as the owners.

Use Other People's Money
One of the remarkably consistent features of stories about people who go from relatively no wealth to major wealth is the role of other people's money in making it happen. Sometimes it's start-up capital from a generous relative, or maybe it's a small business loan or venture capital.

Borrowed money can be a major force multiplier. Behind virtually every real estate empire is borrowed money and the use of leverage in investing (whether through buying stocks on margin, buying options or buying futures) can rapidly magnify a skillful investor's success. Of course, this cuts both ways – just as borrowed money can create a large business (or portfolio) quickly, just one mistake in an over-leveraged enterprise can bring the whole thing crashing down.

It comes down, then, to risk tolerance. Those who really want to build large wealth (and do so quickly) through business or investment will have to do so in part with other people's money.

Cultivate a Valued Skill
Wages respond to supply and demand just like everything else, so it is very important to cultivate a skill that is not only in demand, but scarce enough to be valuable. Architecture and law, for instance, are both specialized skills, but not necessarily rare enough to make their practitioners wealthy unless they are at the high end of their profession.

Sports is an obvious example, but most people know in their teens whether they have the rare physical gifts (and perhaps the even rarer mental discipline and dedication) to open the doors to a professional sports career, and it's not really a door that can be opened in college or later. Medicine and engineering, though, are both open to college-aged people who have the requisite abilities and the willingness to put in the effort. The services of these professionals is not only almost always in demand, but the supply is small enough that professionals here can fairly expect to become millionaires on the basis of their labors.

This is also true for unconventional skills as well. Pursuing a career as a writer, actor or professional gambler is a virtual guarantee of poverty for most people. For those who actually have the skills necessary to succeed, though, it can be their best chance of building real wealth.

Out-Think or Out-Hustle
Lazy and self-made millionaire just don't go together. Hearkening back to that supply-demand equation, anything that's relatively easy, convenient and accessible is going to have ample supply and relatively low payouts. Since most people don't actually want to work that hard, though, there are real wealth-creation opportunities out there for those willing to think and/or work just a little harder than average.

One option for building exceptional wealth is to out-think the majority of people out there. While endeavors like writing, investing and inventing all involve a tremendous amount of effort and dedication, there is at least some aspect of out-thinking to them all. Steve Jobs of Apple , Herb Kelleher of Southwest a nd Alfred Mann of MannKind all clearly worked hard to achieve success, but a lot of that success was predicated on seeing things that others didn't see and figuring out how to do them even better.

Out-hustling is an undervalued aspect of wealth creation. Success in business is often about the hustle – the willingness to make one more call or work an extra hour later. The field of "hustle" is wide, rich and fertile. You can make good money visiting estate sales and reselling undervalued items, just as you can make good money from a variety of multi-level marketing programs. The question is whether you want to spend the hours it takes to drive the process forward.

Rental real estate is a good example. It is actually not all that difficult to find rental properties, buy them and rent them out. Do this well and it's fairly easy to earn an annual return of 8-15%. The problem is that there are a myriad of small annoyances that go with it – hassles in haggling over the purchase price, hassles in getting mortgages, hassles in getting tenants, hassles in dealing with tenants and so on. Some people just don't want to be bothered with this, but those who don't mind the annoyances can reap the rewards.

The Bottom Line
Having $1 million or more in net worth is still uncommon enough to be special and significant, and it doesn't often come as a byproduct of luck or chance. Hard work is a virtual requisite, but so too is a willingness to take on some risk (such as starting a business or using leverage) or cultivate a rare gift (like writing or inventing). Although simple living and sound investing will help anyone build more wealth, a special level of success requires a special person who is willing to do more and risk more than most people. 

Cash was one of the last things that his company was looking for from private equity

Selling a company used to be the only choice for a business owner. Unfortunately. this myopic view still lingers on even though there are many more options for those founders wanting to get some money for their hard work. Companies may consider taking on a private equity even if they don't need the money, simply as a way of making the transition from a private to a public company. 
Other companies, like Bermingham Construction, had a balance sheet ill suited for the public market because it was lumpy due to large contracts. The public market just would not bear the irregular cash infusions. Their option was not the public markets but to take on private equity partners.
A private equity partner can generally help companies in a number of ways, including:

• Upgrading the board of directors with seasoned industry professionals
• Forcing a strategy process and financial reporting on a more frequent basis
• Recruiting senior management, if necessary
• Implementing more sophisticated systems and financial controls
• Introducing entrepreneurs to investment bankers or potential buyers in preparation for an eventual IPO or sale

The Facebook story is well known to the point of exhaustion but it worthwhile to note how quickly Zuckerman got involved with private equity. Not just any private equity either - the best.

Another case study that reached the media was told by David Kalt, CEO of optionsXpress. David says cash was one of the last things that his company was looking for from a private equity partner. OptionsXpress, an online broker based in Chicago, Ill., specializes in the fast-growing market for online options trading for retail investors. The company expanded rapidly over the first three years of its existence, reaching 70,000 accounts and $50 million in revenue by the end of 2003. "Because we were very capital-efficient and profitable, we didn't need an outside investment to grow the business," said Kalt, "Instead, we viewed a private equity relationship as a way to navigate very rapid expansion and prepare for an IPO."

What helped get optionsXpress to the IPO stage? A $90 million equicty investment provided liquidity to early shareholders, allowing the firm time to fully consider its IPO strategy. Additionally, its equity partner helped them understand the process and introduced the optionXpress executives to key players in public markets. It helped the company build a top-notch board and recruit an experienced CFO who upgraded the company's financial systems and reporting to public market standards, further assisting the company in its IPO path. In January 2005, optionsXpress (Nasdaq: OXPS) completed a successful public offering.

There's no set timetable for seeking out private equity. Some companies operate perfectly successfully on their own for decades; others like Facebook, seek an infusion of capital earlier in their life cycle. Regardless of the exact timing, most successful entrepreneurs and management teams do eventually reach a stage where exponential growth is possible, and where they want to reap the financial rewards associated with the company they've built. When your company comes to this crossroads, you, like many other successful entrepreneurs, may wish to consider taking on a private equity partner.

Canada doesn’t have an innovation gap, but a commercialization gap

Davos gave Stephen Harper the opportunity to discuss the issues about how to allocate capital (tax payer money) to strengthen Canada for all of our futures. Quite the job and we can see how hard it is for government experts to be Venture Capitalists (Solyndra is one boondoggle costing the US tax payers a crazy half a billion dollars. If only Canada had a government fund that size) or even more staid private equity investors up at the RIM size of business.
It ain't easy. Business grows and then declines. Canada and America have their 100 year old companies that have survived, along with ones that the government has helped during struggling times. The problems come if the government takes over the business, just look to the UK in the 70s as their well meaning government meddling destroyed many a British pearl - Rover, Rolls Royce, etc.
Barry McKenna has a great article in the Globe and Mail about being a top politician and debating how to boost business growth in the country. Barry's opening sentence is a beauty:

Stephen Harper’s Davos manifesto is the Throne Speech he never delivered at home.

Better late than never. Best to know what’s coming. It’s now clear that innovation – or more precisely, the dearth of it – has rocketed to the top of the Harper government’s agenda. The Prime Minister is not happy about the return the country is getting on the roughly $7-billion a year Ottawa pours into research and development. “We believe that Canada’s less than optimal results for those investments is a significant problem for our country,” Mr. Harper said last week at the World Economic Forum in Davos, Switzerland.

He vowed to act “soon” on the recommendations of an October task force report chaired by Tom Jenkins, chairman of software maker Open Text Corp. The report’s central finding is that Canadian companies are investing less in R&D than they did nearly a decade ago, falling worryingly behind foreign rivals in spite of one of the most generous tax regimes in the world.

Mr. Jenkins’ main prescription – revamping the $3.5-billion-a-year Scientific Research and Experimental Development program – is now apparently also Mr. Harper’s plan. And the next budget, likely coming in late February, will no doubt signal big changes.

Mr. Jenkins argues the SR&ED tax credit should be simpler and less generous, diverting the savings to more focused funding of business innovation. Among suggested changes: limit the credit to labour costs and reduce the generous refundable credits available for smaller Canadian-owned companies.

Nearly 25,000 companies across Canada use the tax break, from the majors to tiny startups, covering virtually every industry in the country. But a recent Globe and Mail investigation found widespread abuse, including bogus claims and oversized consultant fees paid from credits.

And a report by federal Taxpayers’ Ombudsman Paul Dubé to be released as early as this week is expected to expose a litany of complaints from users about how the Canada Revenue Agency runs the program, including confusing and inconsistent decisions.

Mr. Jenkins would put innovation spending under the control of one federal minister and one agency, shifting the balance from tax breaks to direct funding, putting more money into “late-stage” venture capital and better use of government purchase to spur home-grown innovation.

These are sensible suggestions.

In spite of all the money Ottawa spends, there are large and significant breaks in the financing chain needed to take great ideas from the lab to factory floors, and global markets. Shrinking the $7-billion envelope, including the SR&ED, won’t produce more of what Mr. Harper wants. It could produce less. And if the money is going to be diverted from SR&ED, to where? Should some industries or companies be favoured? The Harper government isn’t saying yet.

Part of the problem is a chronic misallocation of capital – too much going to some sectors, such as housing, and not enough to the country’s innovators. Canadian business leaders say high risk loans and venture capital for startups and entrepreneurs is severely lacking in Canada, and that impairs companies’ commitment to innovation, according to a report being released Monday by the Conference Board of Canada. “There is an urgent need to identify solutions to the weakness in Canada’s capital markets for innovation,” concludes the report, From Perception to Performance.

The Canadian Advanced Technology Alliance, which speaks for the high tech industry, has been making the case to Ottawa that Canada doesn’t have an innovation gap, but a commercialization gap. “Too often our businesses are not effectively growing their firms into international successes. Too often, the full rewards of our innovators are leveraged offshore,” CATA senior vice-president Russ Roberts lamented in a recent update to members.

The biotech industry, meanwhile, is pushing the idea of flow-through shares – now used by resource companies – to help companies reach the stage of commercialization when they have high capital needs but few revenues.

The same model has helped turn Canadian resource companies into global leaders by encouraging startups to go public and tap investors willing to take big risks in return for tax breaks, argued Rick Sutin, a partner and corporate finance specialist at Norton Rose in Toronto. So why not technology-focused companies? (Flow-through shares allow companies to transfer tax deductions to investors, who can then use them to lower their personal or corporate tax.) The idea might not cost taxpayers anything, Mr. Sutin said. There’s a limited pool of non risk-averse investors, and they would simply shift from mining and oil to tech.

Canadians have a lot to say about how to steer more capital to innovation.

Odd, then, that Mr. Harper would choose the Swiss Alps to launch such a crucial debate.

The best private equity funds are skeptics

"People will generally accept facts as truth only if the facts agree with what they already believe." 

Andy Rooney said these wise words and with his long history in the media, he would know.
Mistakes happen in private equity when the buy side--the fund managers-- fall in love with what they want to see.  Good funds want to critically assess the financial numbers long before meeting the personalities in order to make logical decisions. Once the fund meets the owners, their decision is 50% made. Now to see if they can get along as partners for the next few years.
Before you approach a private equity fund, ask, "Do the numbers fit with what you are selling as your business story?"
If not, get an exempt market dealer to help you develop your case and financial story. If you have revenues, debt is not the issue, you will be of interest to some investor.

Andrew Bell's big question on BNN The Pitch

Do you notice on the BNN hit TV show, The Pitch, Andrew Bell often asks the private equity panel this question: “How do you decide which entrepreneur gets the thumbs up?”

Andrew is asking for the secret recipe that gets one owner the investment but another seemingly good business owner gets rejected. Invariably, the private equity experts will say it is the people.

What is it about the people?

Well, they have to be passionate.

Yet many passionate people do not attract financing. What is the issue?

It really does come down to how open the person is to critical probing about their business. Do they answer questions directly or fudge? Do they listen to ideas by the private equity experts or do they dismiss, or even worse, ignore concerns?

When private equity says they invest primarily in the people, they mean they invest in people willing to move over and share the steering wheel.

Should I hire a broker or investment banker to help me sell my company?

An important question for an owner wanting to sell their business is, "Should I hire a broker or investment banker to help me sell my company?

The answer to this question is “maybe.”

The fees charged by intermediaries are significant. However, there are scenarios when qualified intermediaries can add significant value far in excess of their fees.

For example, if your company has performed well for the past two to three years, you want to sell most or all of it, there are a large number of potential buyers and you have no idea who the right buyer will be, a sale process run by an intermediary potentially can generate a much higher value. Another scenario is where the intermediary has particular expertise and experience in your industry, and there is “story” required as part of your sale presentation. If there is significant risk to your business if the word leaks that you are selling, you are likely better off working with a smaller exempt market dealer than a transactional lawyer.

If you want to save on lawyers’ fees, a good exempt market dealer will make sure the bulk of the work is done before calling in expensive lawyers.

There are many scenarios where an intermediary will not add value. For example, if you know the one or two likely best buyers, then you should be able to maximize value with the assistance of an experienced transactional lawyer (which you need regardless).

Private Equity likes to use intermediaries, exempt market dealers, when selling their own portfolio companies.

Often it’s a good idea to seek the advice of your accountant when making this decision. If you decide that you need an intermediary, please do not base your decision on the firm name. Be sure that the individuals that will be representing your company (often not the senior partner that comes in for the dog and pony show) have the talent, experience, time and drive to get your deal done. 

Speak to the local ExemptMarket Dealer Association in your geographic area.

Jacoline Loewen is a Director of Loewen & Partners Inc., an Exempt Market Dealer, specializing in finance for owner operators and family businesses, specifically acquisitions, restructurings, sales, successions, strategy and private equity financing.

Jacoline began her career with Granduc Mines, Northern BC, and then Deloitte in their strategy unit. She developed a strategic planning model and published it in a book called "The Power of Strategy”. She also wrote "Business e-Volution" and “Money Magnet: How to Attract Investors to Your Business” (Wiley), which has been used by Ivey as a text book.

She is a Director on the Board of the Exempt Market Dealers Association (EMDA) responsible for brand and communications. She is on the advisory board of DCL International, Bilingo China and Flint Business Acceleration. She has been a Director for other Boards such as the Strategic Leadership Forum.

She is a regular panellist on BNN: The Pitch, a contributor to the Globe & Mail and National Post, serves as a judge for the UBC and the Richard Ivey School of Business’ Business Plan Competitions and is a guest lecturer at Ivey and Rotman Universities. Jacoline holds an arts degree in Industrial Relations from McGill University and a MBA from the University of the Witwatersrand.  Her MBA thesis was selected by Cambridge University and published by Cambridge’s Engineering faculty. 

Capital gains key component to Romney’s tax strategy

Different types of taxes seem too difficult for Americans to understand. With our sales tax HST, Canadians may understand the distinctions.

I do find it interesting which media sources like to just give the percentage and no elaboration on whether it is income tax or capital gains tax. The charity donations are also worth comment.

Here is a Palm Beach article on the topic.

Capital gains key component to Romney’s tax strategy