Lead, Follow or Get Out of the Way

“Indecision and silence is the most dangerous risk a business owner could take”, says Charles Loewen, CEO and President of a fourth generation family business. Loewen Windows is a company where seeming opposites exist in harmony; delicate beauty and a steely toughness; pride in craft tempered by an abiding humility. This family business has remained faithful to its roots, but has also grown to embrace new technologies and ideas from places as diverse as Europe, Japan, and North America.

Loewen Windows went through expansion and contraction in the Japanese market during the Ninties.

Charles Loewen, CEO of Loewen Windows is speaking at a joint Ivey Business School and Loewen & Partners CEO Roundtable event.

If you are interested in attending, here are the details:

Thursday, November 20th, 2008

10:30 am – 3:00 pm

The National Club

303 Bay Street, Toronto

Bay Street & Adelaide, Downtown Toronto

Map Location & Parking
Cost $148.00 + GST
To Register (Please note, business owners and CEOs only):
Please email: akobeleva@loewenpartners.com or call 416 961 0740 and ask for Anastassia

Have We Dodged The Bullet?

It was not long ago that some experts were predicting a $200 price for oil but with it down far below predictions, Dr. Warren Jestin of ScotiaCapital warned, speaking at a conference on fuel price held by DTA, “Don’t get fooled by the drop in fuel prices. It will go back up.” Have we dodged the bullet here in Canada? Although Canada is night and day to the USA with our banking system, we are still impacted. USA’s “borrow to buy” model is not in Canada and that sub prime idea proves that not all innovation is good.
“Step back and understand the fundamentals,” advised Dr. Warren Jestin, ScotiaCapital.
Warren Justin, Chief Economist of ScotiaCapital. Warren joined Scotiabank some 25 years ago and is a popular public speaker and media commentator on economic issues in Canada and abroad. His expertise both about Canadian and global economic issues is extensive and his team's research work is leading edge.
Dr Jestin believes Canadian Banks are in good shape
For the last fifteen years the USA has used the “borrow to buy” model which was most prevalent in housing. There was a record number of Americans owning their own home but the model could not be sustained. Consequently, the USA is deleveraging and with eighteen months of housing inventory to clear, this will take years.
The core message is that the growth rate of China is above 10% and even if it slows with the global problems, it will drop to 8% which is still a very attractive opportunity for investment money, compared to the USA growth rate of 1% to 3%. Inevitably, there will be a shift in where foreign investment flows and this will affect our economy.
Fuel Prices Will Return to Highs
As for fuel prices, Dr. Warren Jestin advises to treating the Canadian dollar as if it were on par with the US dollar even if it drops below, since commodity prices will rise up again. By the end of next year, expect fuel prices to also move back up as commodity prices increase again. Supply conditions for oil could be affected by OPEC and whether it decides to cut back production. Oil is being used less as companies become more productive. "Ultimately," John Loewen , CEO of Loewen & Partners, says, "China will determine the price of oil and it is on a growth trajectory."

Design Your Freight Program

It goes without saying that the manufacturing and retail industries are slowing and this is a challenge to the status quo. A well designed freight program can add good value.

“Many companies are asking ‘What can we do well here in North America? Credit is tight and how can we make better use of the dollars we do have?’” said Dan Goodwill, a specialist in Logistics at an event with DTA and Jacoline Loewen, author of Money Magnet and a partner in raising capital. Don Goodwill advises, “A good place to start where there are opportunities for cost savings and logistics offers many hidden opportunities.”
Have a Score Card
§ On time service
§ Billing accuracy
§ Refusal rates – is your order profitable to them?
§ Claims and exceptions
Goodwill suggests that the key is to actively look for paradigm shifts. In other words - change from one way of thinking to another.

Places to Start to Look for Change

1. Examine your inland freight costs – it’s a missed opportunity. Look at alternative logistic venders and change your requirements. Could you live with longer lead time of five days instead of two and go for a lower price? Revisit your economies of serving your own market and see where you can be flexible.
2. Check your assumptions about the cheapest and best ways. There was a time when if comparing box cars and trucks and you were doing a bid - the truck rates were better than the car load. This has shifted.
3. How can you leverage your freight smarter? For example, are there ways you can make life easier for your carrier? Are you asking them to arrive at four in the afternoon and then sit there waiting, charging up your fee?
4. Look to your customers’ needs. For example, Shoppers Drug Mart has inbound freight from many vendors and wants to leverage that freight cost as it is a good opportunity to save money. Instead of 3,000 incoming vendors, it wants to go down to 1,000. How can you help your customers simplify, streamline and save money?
5. Understand your true costs. You can benchmark fuel surcharges and figure out the rate between Calgary and Montreal.

Dan Goodwill, President Dan Goodwill & Associates. Dan was the previous President of Yellow Canada, President of Clarke Logistics, General Manager of TNT Railfast and Vice President Sales & Marketing TNT Overland Express. His broad experience makes him a knowledgeable public speaker on cost savings programs and profit generation.

Private Equity Key to Strategic Expansion

Having recently partnered with Bermingham Construction, a Hamilton-based manufacturing company and winner of the 2008 E&Y Manufacturing Entrepreneur of the Year award, C.A. Bancorp was a key component in its successful transition to global markets. Mark MacDonald, Managing Director, Private Investments, will discuss the process of working with a private equity firm for the first time. C.A. Bancorp is an alternative asset manager that specializes in small and mid-cap opportunities. C.A. Bancorp seeks to help private companies innovate by investing expertise and intensive analysis of macroeconomic themes, industry trends, and market dynamics.

Having a partner like C.A. Bancorp helped the family owned business move from stagnation to dynamic growth to markets far more dynamic than the mature North American marketplace. It takes guts to allow in partners but do you want to be rich or be in control?" asks Jacoline Loewen, author of Money Magnet and partner with Loewen & Partners.

Join the Discussion with Mark:

Thursday, November 20th, 2008

10:30 am – 3:00 pm

The National Club

303 Bay Street, Toronto

Bay Street & Adelaide, Downtown Toronto

Map Location & Parking
Cost
$148.00 + GST
To Register (Please note, business owners and CEOs only):
Please email: akobeleva@loewenpartners.com or call 416 961 0740 and ask for Anastassia

How to Take Money From a Dragon

Guest Post on Dragon’s Den by J. B. Loewen

Imagine, if you would, that you are about to pitch your business to the Dragons and are being shown toward the Den. (I presume the CBC producers use long, pointy sticks to prod entrepreneurs forward). Ahead of you lie the huge vault doors which remind you no one escapes the lair of the Dragons. There they wait in the gloom, seated up high (increasing the drama) and TV cameras glint menacingly, waiting to capture the moment you are flayed to the bones. You are tethered to a pole and the Dragons rise up shrieking and set upon you.
Well…not quite.
But reading through the blogs and Fan Forums, there are many comments from viewers who find the rough & tumble of the Dragon discussions distasteful – as if CBC has brought back Elizabethan Bear Baiting for our viewing pleasure.
Yet, gentle viewer, I believe this week’s session of Dragons’ Den awarded more to the entrepreneurs than the Dragons. First to enter the Dragons’ lair was Larry Destiny, his stage name from days as a fearsome pro-wrestler. Still carrying a glimmer of his wrestling ring stage presence, Larry rolled out his product called Attitubes – water filled weights.
As Arlene Dickinson said, “If someone had come to me with the idea of a ball in every gym, I would not have believed it.”
Larry quickly lured all the Dragons down to his pit and had them doing deep knee bends and even got Big Jim Treliving hoisting his watery weights above his head.
Now who’s being tortured here, folks?
With the Dragons suitably subdued and keen to learn more, Mr. Destiny let loose his own bit of torture, “I do not have a single sale.” Attitubes is still just an idea – patented – but a concept only. The Dragons fell into a heated discussion over whether it could be licensed or sold. Robert Herjovac informed Larry he had been drinking some wicked Kool-Aid to offer 20% of his company for $200,000 (making it an $800,000 valuation). If Larry had some sales to prove the concept, it would have been different. One by one, the Dragons backed away and Big Jim suggested Larry take charge of his own destiny. Last to speak was Arlene. She said, “$200,000 cash but for 60% of the company.”
With Larry off to call a partner, I waited for one of Kevin O’Leary’s intemperate jokes but this time it was Robert hurling words like ‘ludicrous’ and accusing Arlene of sitting too close to Kevin, picking up his evil aura, and stealing a naïve entrepreneur’s business – yet again!
Kevin, normally the hot head, calmly agreed with Robert, telling Arlene she was taking over his role of Chief Incubus of Venture Capital. She just gave them her Mona Lisa smile but W. Brett Wilson stepped into the frey and told the others to back off, “Arlene’s in and you’re not – so stop badgering her.”
I was hoping for a fight, swords drawn, maybe a fatal blow struck but no such luck because of Destiny. That’s right, Larry returned. Guess I’ll stick to Hockey Night in Canada for the gloves-off fights.
Here’s where the cruelty to Dragons begins. Larry negotiated the same cash deal but lowered the offer to 50% ownership. People, please, this is a lot of cash for just an idea. Yet when Brett stepped back into the deal, bringing his sports teams and gym to use the product, Larry was soooooo mean. No way was he changing his power play – boom, boom, boom. His brutality shocked me. Even Brett said, “When we shake, don’t crush my hand.”
Note to Larry: May I suggest a brand name switch? What about Aquatubes? It gives the water concept and Attitubes is little too close to ‘tubby’ for my liking. Oh, if you do go with my idea – how about $200,000?
This deal of Brett and Arlene’s was a bone crunching triumph for Larry Destiny. Here we get a glimpse of Venture Capital at its best. Research out of Harvard Business School says that money from outsiders is more likely to spur on success than cash from your favourite auntie or your mum. There you go – Larry Destiny and all you entrepreneurs out there, Dragons’ Den offers you a great chance to get the wealth you deserve. For all those who withstand the Dragons’ fire, enduring their scorn, you will be stronger. Otherwise, there is the long standing tradition where outside the CBC building, the heads of entrepreneurs are displayed on spikes as grisly reminders of those who spurned the advice of the Dragons.

J.B. Loewen raises capital for growth companies and is the author of Money Magnet: Attract Investors to Your Business.

Private Equity Investors are Ready to Spend

David Simpson recognized the important role that family controlled businesses play in the Canadian economy, and became founding Director of Ivey’s Business Families Centre. As an operator in a family business himself, he supports learning in this vital sector of the Canadian economy and maintains a passion to promote this lifestyle choice.

Join David as he leads the discussion. Please note that space is limited to maximize the value to attending CEOs by ensuring a highly interactive environment.
Thursday, November 20th, 2008

10:30 am – 3:00 pm

The National Club

303 Bay Street,

Toronto

Bay Street & Adelaide, Downtown Toronto

Map Location & Parking
Cost
$148.00 + GST
To Register (Please note, business owners and CEOs only):
Please email: akobeleva@loewenpartners.com or call 416 961 0740 and ask for Anastassia

Agenda
10.30 am – 12:00 pm
David Simpson, The Richard Ivey School of Business, Business Families Centre - Welcome
Charles Loewen, C.P. Loewen Enterprises Ltd.
12:00 pm - 1:30 pm Networking and hot lunch
1:30 pm – 2:30 pm
Mark MacDonald, C.A. Bancorp
2:30 pm – 3:00 pm Networking

Gold Sponsor: Loewen & Partners works with private companies to raise growth capital. Our goal is to match owners of companies with suitable investors who understand the business and can add significant value. Over the past decade there has been a significant shift in the sources of financing available to small and medium-sized companies. This is primarily a result of the rise of private equity as the best place to access capital.

The Canadian Dollar is Ridiculously Undervalued

The storm is passing over according to a financial expert who called the Wall Street melt down in July, 2008.

"I think we're ending the financial crisis now," said Krishnamurthy Narayanan who studied under Paul Krugman at MIT and runs CI Global Opportunities Fund has returned 57 per cent in the past year, 19 per cent (compounded) over the past five. "
There will be countries, like the U.S., that will go into recession. But this need not be a global recession. And there are some encouraging signs on that front."
Narayanan was in Toronto and said he's buying Canada - the dollar, the oil, the companies. An excellent story in the Globe and Mail by Derek DeCloet ddecloet@globeandmail.com, October 25, 2008.

"The Canadian currency is ridiculously undervalued. I can't think of any country in
the world that has no fiscal deficit, no trade deficit and no inflation - except Canada. I think the Canadian dollar should go through parity. I like the whole Canadian market. I don't particularly dig the banks because I just don't know what's in there [on the balance sheet]. But I'd say virtually everything else is fine.

Canadian SMEs Need to Partner Up

"If Canadian companies want to survive the global economy, most current SMEs will need to find a partner to grow," said Jean Rene Halde, President and CEO of Business Development Bank of Canada. "Most SMEs - small and medium sized enterprises - are just going to need to get together with a competitor and partner."

Halde spoke to the Canadian Club of Toronto, October 20th, and explained that the new economy is no longer a small aquarium with room for many small fish. Imagine taking that aquarium to the ocean and now the fish can choose to stay in the glass box, even though the top is open? If they do leave their artificially safe old home, they will need to be a bigger size to avoid getting eaten.

With the Internet and global business borders, the world of commerce has jumped in size. SMEs will need to find suitable partners to buy. This next five years, companies will need to double or else close their doors. Find private equity to support your growth and help guide you out of your comfortable spot in the aquarium and out to the big sea.

Even Kevin Would Agree

I have been asked to blog for CBC's Dragons' Den, the Venture Capital reality TV show. It is a change from my usual writing style as the audience is different, so please take it with a big pinch of salt!

Every now and then, investors will take a punt. In other words, they put cash on a deal with the off-chance it may do well and spin off rich returns. This week, the Dragons played the lottery but also shared their appreciation for the finer elements of life – the Arts – by supporting two sensitive souls asking for $10,000 to complete their film project. Did these producers get lost on their way to the Canada Council for the Arts who gave a grant to the movie Young People F***ing. Then why not give a grant to a movie about a Canadian’s journey to the Playboy Mansion?
Of course, Dragon Arlene Dickinson grasped the marketing genius of these two artists who knew that by appearing on TV, they would build advance hype for their movie titled My Date with Hugh and expose it to a wider audience of highly intellectual and attractive Dragons’ Den viewers.
Dave, the producer, handed a card to the Dragons which had the list of movie stars appearing in the movie (I’m assuming in cameo roles). Suddenly, Dragons Kevin O’Leary and Robert Herjovec went into a feeding frenzy. But who’s names were on that list? Madonna’s soon to be released husband, Guy Ritchie? Perhaps Brad Pitt taking a break from Angelina and the kids? “Hi honey, I’m just stopping in to see some friends. Don’t wait up, love ya.”
That list also got W. Brett “Clint Eastwood” Wilson to briefly clench his jaw.
Brett approaches his deals like entering a bar room. He swaggers in, expressionless, and just when you think things are going swell, he whips out his six-shooter and blows holes in the deals. There went Herjovac’s offer of $25,000 for 25% of the business.
This left O’Leary spluttering, confused and annoyed,
“Why Brett, why? Why be a Bozo?”
Oh dear, using clown names on a big boy from Saskatchewan* – not good for building long lasting relationships. It just begs the question, did Kevin’s mother ever teach him about manners?
If you are pitching for capital and you find yourself in Dave’s delicious position of having investors start a bidding war, follow Arlene’s advise and ask what each investor group can do for you besides the money. Kevin claimed he had invested in a movie distribution company which made Dave rub his hands together and begin to drool, but Arlene warned that there was a strong whiff of bull manure in the air. Perhaps Kevin was invested in Disney - who knows - but Dave sure did not care and went with Kevin and Robert, leaving Arlene and Brett to twist in the wind. I suppose Kevin is more the target audience and Dave probably imagined himself having A Date with Kevin, drinking beers in his kitchen with the Explosion Bottlecaps and doing other manly pursuits. Yet, Arlene’s marketing ability may have created a more nuanced marketing campaign. Also, Kevin did confess to having an abysmal track record with movies.
There were two more artistic deals – fashion for plus-sized women and jewellery which Hollywood Stars are buying. What’s it with Hollywood? Why can’t we hear that Melinda Gates loved the necklaces?
When Cindy and Rina of Maximum Women described how they stay up into the middle of the night to make calls and do research, Jim Treliving appreciated that entrepreneurial craziness saying he did the same thing as he built his own business. Yet, Jim got the sense that Cindy and Rina knew what they were doing and cash would be used wisely. Arlene asked for 50% ownership, along with Brett and Big Jim. Despite the promise of long, dark, snowy Saskatchewan nights heating up with Brett stopping by for a hot chocolate beside the roaring fire, Cindy and Rina turned down the Dragons’ deal. Robert teased Arlene; finally, someone had stopped her from stealing their business.
The jewellery game is fickle and Kevin did a great job of questioning Rachel of Hillberg and Berk Jewellery but she convinced Brett to invest. The lesson here as that Rachel really knew her numbers which gave confidence that she was CEO material and not a one-product-person.
The best pitch came from Tom with dataSentinel who broke a laptop and then held out the USB key to access the up-to-date files stored safely on the Internet. Masterpiece Theatre could not have done it better and even someone with the abilities of a gherkin could understand Tom’s product. Too bad Robert broke the drama by saying the technology was already in the marketplace.
Bummer.
Robert asked if Tom had received government grant funding and when he confirmed this, Kevin asked for his tax money back.
The CBC and Dragons’ Den is also funded by tax dollars. As Brett pointed out, “This country is built by entrepreneurs” and with small and medium enterprises (SMEs) generating 60% of Canada's economic output and providing 80% of Canadian jobs. There is no doubt that the Dragons and the entrepreneurs who enter their Den teach a great deal about how investors reward innovation. If we want to strengthen our Canadian economy, the Dragons’ Den is a truly fantastic investment of tax dollars. I think even Kevin would agree.

*Mea Culpae: Brett is actually from Saskatchewan, not Alberta, as I have stated in past blogs.

J. B. Loewen raises capital for companies wanting to grow and is the author of Money Magnet: Attract Investors to Your Business.

You Made Money From That?

I've been asked to blog for Dragons' Den. Here is episode 4:

This week’s Dragons’s Den had me gripped – and it wasn’t just by the pitches but the interplay between the Dragons snapping at each other. As Robert Herjovic and Brett Wilson manoeuvred Marissa, owner of Moxie Trades, towards a deal, each of the Dragons took turns chipping at the opportunity. Kevin O’Leary had on his MBA professor hat, explaining how more products means way too much complexity for an early stage business. Unless Marissa sticks with shipping only boots, the SKUs (stock keeping units) will mushroom horribly and as Kevin said, “Marissa will find herself in the world of hurt”. Showing again why she gets paid the big bucks for marketing, Dragon Arlene Dickinson labelled Moxie Trades’ products for females in traditional male jobs as “badges of honour”. Brilliant - but before I could absorb this feel good moment, Kevin had kicked out with his hobnail boots of reality and inquired about the money. Ah yes, it always comes back to the money.
Brett Wilson picked up the theme and asked, “What is the margin on your boots?” When Marissa said around 30%, there were quite a few Dragons trying hard not to look too impressed. Kevin does know his industry metrics and let out that those margins were significant.
It was Big Jim Treliving who tipped over the Dragons’ negotiating table, telling Marissa not to make the deal, leaving Robert to blurt out with a blinding smile, “Damn you.” Gosh, Herjovac makes even his bad moments seem wonderful. He has enormous emotional intelligence in his dealings with people, particularly during awkward moments. Indeed, Robert gently asked Arlene to clarify after she said she did not want to do the deal with him. Actually, she meant the deal structure did not appeal. I also admire the way Robert sets out his boundaries telling other Dragons to make a deal or get out, but in the most charming way that only James Bond (or perhaps Robin Williams) could possibly top. No bridges were burnt with Marissa and we learn that this deal will return in a later show.
The Nails ‘n Martini presentation demonstrated how far you can get with investors when you realize that pitching is more about debate. Actually, the entrepreneur, Martin, approached pitching as a social encounter at The Devil’s Martini Club on Adelaide Street.
As you know, investors put money into people. With Martin, the Dragons recognized a positive, upbeat, outgoing personality and spent the time unpacking his concept even though he had neglected to do much of the work himself. You can see how the partnership between innovator and venture capitalist works. The Dragons bring financial competence, price out the dream and keep everyone grounded in realty. Big Jim is familiar with building a service business one city at a time and then moving down to the USA. Jim shared that the American market place is tough and that he got his “tail shot off.” This is exactly the kind of partner Martin should have in his business to guide him past the rocks and the hard place. Jim’s been there already.
Arlene told Martin she could drive a bus through his plan, particularly the costs. Martin dismissed her feedback saying he already gets money from his wealthy relatives. Hope they weren’t watching because my guess is that they will be putting a stop order on any more cheques. Martin reminds me of a teenager who racks up the calls on his parent’s cell phone and when the monthly bill arrives says, “Whaaaat? I didn’t know.”
Each week, the Dragons astonish me with their openness to listen to zany characters like Martin and to put their money into ventures. Innovation sure happens in strange, unbelievable places. Wouldn’t we all love to invest in a growing business and make money but how many of us could even spot a diamond in the rough? Last week, I was reminded of the crazy quirkiness of innovation at an entrepreneurs’ award ceremony. Lo and behold, the competition winner was a man who started on the streets of Montreal, walking on stilts while eating fire - Guy Laliberté, the founder of Cirque du Soleil.
Zut alors! Turns out, I worried needlessly about Brett Wilson’s sanity when he invested in Alison and her street circus business, Arial Angels. He may have actually done a pretty wicked deal by putting cash into what seemed a flimsy business concept. If a fire eater from Montreal can trade in his stilts for a business suit and finance partners – well, we can see that the world truly can become his stage.
Memo to Alison of Arial Angels: get hold of the book Blue Ocean Strategy which lays out how Cirque du Soleil reinvented the circus business model and beat the industry giant, Wringley Brothers. Then buy a navy blue suit and wear it. Robert Herjovic gave you the best advice for free – become a business person, do not remain an artist. Laliberté accepted his award wearing a suit and spoke about his financial partners, not a word about fire eating.
I’m becoming quite fond of Dragon Brett’s style and how his investment strategy involves so many elements around people, innovation, risk and reward. Maybe Big Jim should follow the Albertan instead of O’Leary. One thing I know: where there’s a Dragon’s Deal, it’s genius.

Jacoline Loewen is the author of Money Magnet.

Capital without Draining the Pool

Q: Why do business owners often sell their healthy business just to achieve some personal liquidity?
A: Because they are erroneously advised that they have no alternative.

Just because a business owner wants to achieve some personal liquidity doesn't mean he should lose the opportunity to run his company and share in its financial future. Unfortunately, all too often owners are told exactly that - they must sell their company to meet their objectives, resulting in both a loss of operating control and their opportunity to share in future growth. John Loewen says, "Business owners need to find a partner to guide them towards alternative liquidity solutions that allow business owners to preserve management control and substantial equity ownership."

It may be hard out there but many private equity funds have capital to invest in great companies. Do not think that selling is your first option - it's often the last. J.B. Loewen's book called Money Magnet describes those options in easy terms.

Peer-to-Peer: Readers' best advice about patent protection

Profit magazine has listed as a must-read for buinsess owners J.B. Loewen's book, Money Magnet: Attracting Investors to Your Business in their September magazine. In their article on how to get your intellectual property patented, Profit gives away a free copy of Money Magnet. Check it out as the advice is given by readers and I know one of the entrepreneurs.

There is No Need to Be Rude

Some people think the Dragons should be kinder and gentler with the entrepreneurs who dare to ask for their gold. One Dragons’ Den blogger wrote, “I think it is great to be honest with the investors but there is no need to be rude. It doesn't add to the entertainment value, just the opposite.”
I don’t think this fan is referring to Arlene Dickinson, Robert Herjavec, Jim Treliving or W. Brett Wilson – although Brett sure can crack the bull whip and we are only into the third episode; so let’s circle the wagons and get back to him later. For now, I have a hunch that this comment on rudeness to entrepreneurs pitching on Dragons’ Den is attributed to alpha-Dragon, Kevin O’Leary. What if the CBC recommended that he follow Tony Soprano’s example and sit down with Dr. Melfi to work through his anger issues? How do you think it would go?
Dr. Melfi begins, “Kevin, so you say you have a lot of money?”
“I’ll say. Don’t you know I’ve made four billion dollars? Not a million…four billion.”
“OK…and you’re on a TV show?”
“Yeah. Dragons’ Den.”
“Catchy title.”
“Who Wants to be a Millionaire was already taken. I suggested Who Wants to be a Billionaire but the CBC producers wouldn’t run with it.”
Dr. Melfi continues, “Perhaps we should talk about your behavior. Now Kevin, most people would be thrilled to have your success but some viewers complain that it’s distressing the way you grill those poor, brave entrepreneurs. I mean…on this last episode you called that man from Eco Anti Freeze a cockroach.”
Kevin sighs, “First of all, I asked him if he was a cockroach and that’s because I liked his business. I need to get him worked up, see how he reacts. Hey, when it comes to your own investing, money can disappear pretty quickly. You may have noticed the stock market?”
Dr. Melfi shudders, “But the point is - you could be nicer.”
“The point is to see if I like the guy because if I invest, we become partners. Besides, even Robert Herjovec told the guy he had an edge.”
“But he said it with a smile. Perhaps you could channel your anger like that?”
Kevin raises a valid issue that when you raise private equity capital, it is all about partnership. When the Dragons invest, it is not like a bank loan which is passive. It is venture capital which means the Dragons are giving money for a piece of the business to become an active partner. They need to get into the boat to row with the entrepreneur for five years and it is known that some investors will rile up an entrepreneur to assess their personality. Character is important as the Dragons will introduce the entrepreneur to people in their network and that reflects on them. The Dragons will meet the entrepreneur frequently, build the strategy, phone him and trust his business skills. The Dragons must be confident that they can get in that row boat together and pull the oars in the same direction. That’s the point.
It does not take away from the fact that pitching your business deal is very hard whether you are on TV or not, and can be underestimated by the majority of owners wanting to raise capital. The two fellows with Eco Anti Freeze are an example of how quickly a presentation can go from good to grotesque. Jim Treliving owns Mr. Lube which is a client of Eco Anti Freeze in Vancouver already, and it was obvious Jim was pleased that the team had done their homework about his possible interest. Recycling of chemicals is a growth business so all the Dragons looked interested. Unfortunately, when the questions began, the wheels came off. Fair or not, you need market data to back up your statements or at the least, to try and give a response. There is no doubt Eco Anti Freeze will find an investor if they allow financial partnership in their overall company, not just Ontario, and they work on their market analysis. Rest assured, they will live to see another day and do well.
Compare that presentation to Darryl with the Buster Rhino BBQ sauce. As he presented, Darryl took on the questions with flair. Although he also lacked numbers and was sketchy on the use of investment money, Darryl made it clear he would be a fair, flexible partner. As Robert Herjovic and Brett Wilson told Darryl as they handed over a cheque for $200,000, “That was not the sauce, that was all about you. That was wonderful.” So Darryl will be grillin’ and chillin’ with the Dragon team because he kept his head and they liked his attitude.
“Kevin,” Dr. Melfi continued, “Can you empathize with these business owners risking their reputations to come on TV and show what is close to their heart – their business?”
Kevin leans forward, “Agreed. But when is the normal entrepreneur going to have five top experts focus on their business? Never! What about the millions of people watching – someone’s going to like what they see even if us Dragons don’t. Past presenters have gone on to raise capital – last year there was a group who raised millions after being ‘distressed’ on the show. Wish I’d had the Dragons’ Den opportunity – I would have jumped at it.”
“Even if it made you look like an idiot?”
“Absolutely! To get that kind of television exposure is worth it – yes, even if you look goofy. You’ll be so much further along than if you’re still in your basement thinking your product’s going to change the world.”
“But couldn’t you just say ‘I’m out’ without slamming them? You told one nice presenter that you would rather put needles in your eyes and let a truck run over you. I’m concerned about how you are damaging your reputation and embarrassing people.”
“Listen lady – a lot of people told me I was crazy. Did I cry? OK…a little but that stays in the cave. I listened. I asked questions. I learned. I adapted. I changed my business. Do you think I got to where I am without pain? I had the sweats. In the middle of the night. For years! Does anyone care about that? Nooooooo…”
Dr. Melfi glances at the clock, “Well, Kevin, that’s it for today –same time next week?”
J.B. Loewen raises capital for established companies and is the author of Money Magnet: Attracting Investors to Your Business.

Private Equity Fund Raises $980 Million

Sequoia Capital spent last week presenting to the private equity investment community and warning about how difficult it would be for fund managers hoping to raise money to invest in businesses. Turns out that raising capital for a new fund was not so hard for Sequoia as they announced that they had $980 million for their new fund. John Loewen says, "Not bad for such trying times. Much of that money is earmarked for BRIC countries but I would not be too quick to write off the Americans. Remember back in the 80's Japan Inc was supposed to take over the world."

Lehman Brothers Go-Slow Strike

O'Leary's Not Buying It

“This is a really, really bad idea.”“You’re crazy.”“You will end up going to the forest and slitting your wrists.”
These were vintage lines from the fieriest Dragon gazillionaire, Kevin O’Leary, who is to Dragons’ Den what Simon Cowell is to American Idol. Kevin says the things we are all thinking at home but would never dare to say to someone’s face and it’s what sets him apart as an investor. Like Simon Cowell, Kevin’s words may sting but not as much as spending $700,000 of your own money and ten years of your time without making a dime of profit – like the Dolls House kitty litter guys. That’s sad. Imagine if they had met up with the CBC Dragons back then, got a blast but listened. Maybe they would have changed their idea or found a job with Purina. Today they would have a healthy RRSP and bank balance instead of looking as if they’d sucked back a mouthful of Buckley’s cough medicine.
Ditto to the cute lady with her Bubbles the Dog book, the pizza box guy and the white-suited bee exterminator. As the marketing Dragon – Arlene Dickinson - quipped, “Bee gone!”
Dragons’ Den is back with a vengeance this season offering intrigue, drama, cruelty and redemption – better than any soap opera because if you listen to the Dragons’ questions and, yes, to Kevin’s digs, you cannot help but learn.
Dragons’ Den is back with a vengeance this season offering intrigue, drama, cruelty and redemption – better than any soap opera because if you listen to the Dragons’ questions and, yes, to Kevin’s digs, you cannot help but learn.First up (excuse the pun) was Fit to Touch, - a rather suggestive exercise program to do with your loved one, and if you have a friend but you are not a couple, do this program a few times and you will be. Although most of the Dragons chuckled and cringed, big Jim Treliving was interested because he had connections who could commercialize the concept.
In any developing business, no matter the industry, you need to translate your ideas into sales. In other words, how are you going to get customers to take money from their wallet and give it to you? Until you get healthy revenue you will need to depend on infusions of money: investment capital. In other words, cash from investors like the Dragons.
Kickspike, a golf shoe with retractable spikes, attracted the most money ever invested by the Dragons – one million dollars! What was so special? First of all, it is a sports product which speaks to all the Dragons. The shoe was easy to use and could be rolled out to a far wider market such as construction boots, seniors’ walking shoes and any sports shoes with cleats. Also, the designers, Colleen and Darrell Bachmann, were smart enough to take out a world-wide patent. With all these stars aligned, the Dragons recognized a good deal. Even the new Dragon, Brett Wilson, a brooding Clint Eastward from Alberta, broke character and actually got excited.
During the final deal, a computer interface that a senior could use to read emails, the full range of investor emotions ran across Robert Herjavec’s face. First, the realization that here’s a darn good product that could make a buck but quickly moving to the horror of how much it could cost to take it to the consumer market. As Robert said, almost to remind himself, “I could run through all of my money and still not have made a dent in the consumer market.”
Exactly. As Kevin pointed out, you have to calculate the cost of client acquisition. Then savvy Arlene shifted gears by reaffirming that the size of the seniors’ market was worth the effort and there were ways to reduce the cost of education by piggy backing the software with companies already serving the over seventies segment. With that, Robert and Arlene were in.
Getting back the invested cash – never mind a profit – from your investment is very hard. This is where watching Dragons’ Den is worth your time if you want to understand the mind of the entrepreneur. Kevin said he spent fifteen years battling in the trenches of the consumer marketplace. That is a long time being knocked down but getting right up again to push forward. It is where Kevin made his fortune but he told the other Dragons how he suffered nights waking up in a cold sweat and he ain’t goin’ back. With that, O’Leary said, “I’m not buying, I’m out.”

The CBC invited Loewen & Partners to be a guest bloger for their financial reality TV show, Dragon's Den. Jacoline Loewen raises capital for companies and is the author of Money Magnet: How to Attract Investors to your Business.

Please tell me you have some sales

The Dragons looked stunned when Paul with the plastic doo-hickey that rolls up the rim of a paper cup said he had sold 200,000 of the things and had made $100,000. With the detailed description of sales achieved, energy swept through the Dragons and they each piled in with their ideas about the potential market. It was exactly what Paul said he wanted – a brain storm with smart entrepreneurs- although he did also let slip that his friends tell him, "You're crazy!"
Kevin O'Leary agreed, "You're crazy but you're crazy like a fox." Glad Kevin's a Simpsons fan but when asking for investment money, save your psychological confessions for when you've made the front cover of Profit because that streak of eccentricity could make your potential investors a tad nervous. Even the kindly Robert Herjovec said, "Paul, it's over."
Moving on to the ideas that amuse us armchair Dragons, there was one gentleman anxious for Canadians to make his symbolic head gear as instantly recognizable as the sombrero. Guess he's not heard about the Mounties' hat made famous by Dudley Do-Right, or Paul Gross in Due South and he must have missed that law suit where the Mountie preferred to wear his turban. We got a sense that Brett Wilson, the new Dragon, like Clint Eastwood, would have liked the idea if it had involved a big cowboy hat with a black cigar thrown in for free. Now you're talking. Someone said that Clint Eastwood has two expressions – the one with his hat on and the one without the hat. Likewise, Brett has two expressions: one when he wears the next Canadian headgear – the "duck foot" hat - and one when he doesn't.
Then the ladies from No Smudge Lipstixx were a little alarmed to learn from Kevin that they were in the most competitive industry from hell and that their competitors would blow their cars up in their driveway. Yikes! Kevin's comments reminded me of when I was at university, we had a Friday night party where we watched Charles Bronson movies and every time Charles killed someone, we all had to take a drink. I think Dragons' Den could package a game where every time Kevin says "you're crazy" you take one swig of beer and "you're an idiot", a shooter of tequila and when he makes someone cry, you get to wear the "duck foot" hat.
When a teacher with language software arrived, Kevin groaned, "Please tell me you have some sales." Yeah – half a million dollars worth sold from the basement of Catherine's home. Kevin and Robert Herjavec agreed that it is unique for early stage software to have such a good level of sales.
I'm a huge fan of Kevin and the sheer exuberance he brings to Dragons' Den. Someone has whispered in his ear that he's not always super nice but as he says, life is tough. Kevin says it aloud and when people let their stress rise, they miss what Kevin is needing from them. When pitching, expect your heart to pound and give yourself something to calm down. Hold your lucky rabbit's foot or breathe slowly.
I would prefer to deal with someone like Kevin who lays his cards out and gives the entrepreneurs clues to what he needs to hear. He told Catherine he cares about the children which got guffaws from Robert, but if Catherine had been paying attention, she should have jumped in with statistics about the children using her software. Instead, she didn't give even a smidgeon of numbers. She left Kevin remembering his purgatory of life in educational software and swigging back what looked suspiciously like scotch, from his water glass.
Jim Treliving piped up that anything Kevin O'Leary likes, he's interested in coming for the ride too. Poor Kevin has to piggyback the other Dragons and they are making his deals more competitive by bidding up his offers. With the dramatics over, Arlene snapped up that deal at half the value and Big Jim did not join her. Unlike Kevin, Arlene walks softly but carries a big stick. Did the Dragons know that she made her original money by investing in educational software? Catherine, did you hear Kevin say Arlene's ripping you off by stealing half your company?
At this point, my son flipped his laptop over to me to show Catherine's software. He's just started Spanish this term but can already say a few phrases, seems to be handling the vocabulary and is actually enjoying it. As an anxious parent, I have wondered how he has managed to survive. Turns out the teacher gets them to do mini tests on the software as a treat which means my son has already done many quick quizzes to test his Spanish. Compare that to the two tests he may have done with a traditional classroom teaching method. That's hot – which brings us to the end of the show – the mini street Cirque De Soleil called Aerial Angels- two dynamic women with a sizzling street act.
Again, Kevin told the street acrobat, Alison, she was arrogant, did not listen and forget about the crying crap because business is no place for tears. Robert as usual, saved the day advising Alison to decide if she was an artist or a business owner – the same business attitude blocking Catherine from earning the profits she deserves.
Suddenly, from the shadows Brett spoke up, "Alison, I love your passion. I'm in."
The other Dragons looked at Brett as if he had confessed to being scammed by a Nigerian email.
Dear Brett,I am writing to you with a matter of great urgency. My beautiful acrobatic auntie has expired and I need to send her bank balance to an Albertan account. Please show your compassion and tell me the details of your bank account. We are absolutely keen to meet you too, but you can send a blank cheque as well, if you prefer.
Had Brett taken to heart Big Jim's earlier advice to the "roll up the rim" fellow to get a good lookin' gal and sales would soar? I'm with you on that Jim, and Richard Branson of Virgin definitely buys the Treliving marketing theory: There's no doubt that in the right situation, looks do sell. But perhaps Arlene laughed wryly because these are exactly the reasons that women think men in business can be manipulated – how smart is it to make decisions using your libido?
After this show, Brett will be smiling as he specializes in entertainment and knows how to make money with these talented artists and Arlene got a slam dunk with her software deal. Albertans are a mysterious, quiet bunch but they're the ones in Canada with the growth economy, making the money.

CBC invited Jacoline Loewen to blog for their reality TV Show Dragons' Den. Loewen raises capital for companies and is the author of Money Magnet: How to Attract Investors to your Business.

Continue reading at Dragons' Den at the CBC

With a Name like Schmucker's

Are you afraid that your family business will be taken from you if you partner with private equity? Mark Schmucker is the fourth generation leader of Schmucker and was recently in Toronto giving a presentation about how the family business mystique pays off in sales.
Mark showed advertisements from the 1960's which could play today just as successfully with their emphasis on family living, green lawns and a plate of jam sandwiches.
Mark says that in the early 90's, during the big market downturn, his father and uncle made the decision to bring in private equity partners. At the time, the Schmucker business was not doing well and there were family issues too.
With the help of partners (not just lenders) who put in cash but also brought a great deal more, Schmuckers began their growth tract by starting off buying Jiffy peanut butter. Mark says at first the family thought the spread into breakfast foods seemed too ambitious and peanut butter seemed crazy, but today they are happy because they own 8% of a billion dollar company, fifth in their industry.
Not bad.
Jacoline Loewen's book, Money Magnet: Attracting Investors to Your Business, goes through this challenge for business owners to decide if they want to be in control or get wealthy - lifestyle or legacy. Schmuckers chose to go with "get wealthy" and found out what thousands of family businesses have learnt: giving up some of the company to private equity partners results in a lot larger amount of money.
John Loewen says, "bringing in private equity partners to a family business is probably the smartest plan if owners want to pass along the wealth of the business to future generations. Like Mark Schmucker, you do not need to won 51% to have control of the company and private equity gets the mystique of family businesses."

Globe & Mail Tells How to Get Ready for Investors

Are you getting ready to find investors to partner with you in your family business? Listen to this podcast on Report on Business, Globe & Mail, with J. B. Loewen, author of Money Magnet and a partner with Loewen & Partners.

Private Equity Includes Dragons' Den

Dragons' Den, the CBC's hit reality TV Show, is a glimpse into the world of private equity. You can get a good feel for how private investors react to entrepreneurs relying on attracting their funding.

Private equity actually means privately held money - money not invested into the public markets which are open for all. With the IPO being a bad choice due to to the onerous costs of SOX and the bubbles now happening more frequently and with larger ups and fast disappearing "pops", private equity is finding itself to be a welcome option for business owners.

Jacoline Loewen, author of Money Magnet and partner with Loewen & Partners, does some blogging on Dragons' Den and points out the business lessons to learn as these millionaires react openly to entrepreneurs.

Canadian Venture Capital Conference Coming Up

Read the details about the great conference coming up in Toronto, October 12th, held by the Canadian Venture Capital Association -CVCA.
The topic is about going global and Canadian companies are discovering that they can take their strong products to other countries and do very well. It's not just Four Seasons who can go for the top.
Many of the Canadian private equity funds know how to help company owners grow their companies and find success outside of Canada. While working at Loewen & Partners, I have been surprised by how many Canadian companies are already deeply engaged in other countries with more than 80% of their sales from outside of Canukland. We are gaining confidence and it is great to be part of building the Canadian economy.
The cost of the conference is under $300 and it is worthwhile having the chance to be inspired by other entrepreneurs and bump into many of the fund managers themselves.

What Does the Crisis Mean for Private Equity?

Private Equity has passed through a Golden Age, but will now spend a year or so in "purgatory" before entering an even greater period of expansion, or "Platinum Age," according to David Rubenstein, co-founder and managing director of The Carlyle Group, the Washington, D.C.-based private equity firm with more than $70 billion in assets.
In a keynote address at the 14th annual Wharton Private Equity and Venture Capital Conference titled, "Harnessing the Winds of Change," Rubenstein said the credit crisis triggered by subprime lending has brought the growth of private equity investment to an abrupt halt.
When credit markets dried up, large banks had already committed to $300 billion in private equity deals, Rubenstein noted. About a third of that value stayed on bank balance sheets, although much of it has already been written down, he said. Another third was renegotiated with tougher terms for private equity sponsors. For the final third, the deals were never completed and are now the subject of litigation or break-up fees. "For the next year or so, we will be in purgatory. We will have to atone for our sins a little bit," says Rubenstein. As head of Carlyle, one of the biggest private equity players in America and the world, he also believes that the next wave of private equity will be stronger than ever and will start in early 2009.
In Money Magnet, this theme of the breakdown of the big, public markets and the build up of private equity partnerships as an alternative to the Wall Street and Bay Street is discussed in depth.
"It is becoming more pressing, says Jacoline Loewen, "that private equity managers do a better job of explaining how they can improve companies and deliver strong returns that lead to increased employment and economic expansion overall.

Money Magnet Lifts the Veil of Secrecy from Private Equity

"I owe a great deal to the financial investors who gave me their time to tell their stories," said Jacoline Loewen at the launch of Money Magnet. "They lifted the curtain of secrecy that the media love to discuss."
Jacoline says she learnt three things:

First of all – the finance people are generally wonderful. They are dolphins rather than sharks and they love business. The partnerships created by private equity deals I have watched unroll, really do create jobs, pay taxes and build Canadian companies out to the global market.

Secondly: the people most likely to benefit from private equity – business owners – tend to be the people who know the least about this type of financial partnership. Private equity partners get a company focussed on transformational growth and allows all sorts of ways for owners to get money out of their business to pay for retirement, family trusts. Anyone relying on traditional bank debt – it’s just like smoking – you are stunting your growth.

Thirdly: private equity is the way for Canadian companies to survive this global market.
When Ace Bakeries recently sold to an American private equity firm, I called Linda Haynes and asked her if she had looked at any other options – such as Canadian private equity. She said no. As with most entrepreneurs, her passion was bread not the money of the business.

I wrote Money Magnet to try and get Canadian business owners like Linda Haynes to see that Canadian money is here and that instead of selling out to the Americans, we can build iconic Canadian brands that go out to the world – like IMAX, Lululemon, Cirque du Soleil, skidoo, Four Seasons. All of those began their journey of growth when the business owner decided to put their ego on check and say “I can move over and share the steering wheel. I can bring in private equity.” And by the way, the biggest PE deal in the world’s media this year was Canadian, not the KKRs of America!

The hardest part of writing this book was getting a shared definition of what the heck is private equity. I asked Angels, VCs and professional fund managers. All had different answers. But the best was “Private Equity is the energy brought to the company”. That energy is what is priceless and very hard for outsiders to understand. Today in this market, as we see the East pick up the baton from the West’s economy, it is scary times. But remember, the last big smack down in 2000 was when Lululemon, Google, Paypal and countless others were working with their private equity partners. There’s lots of money out there for you.

Takeover Fever in Small-Cap World

A modern day investment banker and Jean-Jaques Rouseau have very little in common, but they would both agree that all is in flux.  Last week every investment bank in America went the way of Yankee Stadium.  The movement of the markets finally overwhelmed all of the banks and they have all sought the security and stability of commercial banks.  Private equity funds have found it difficult in the last few weeks to close deals, most notably Private Equity Partners' close of target Informa PLC.  Reports suggest that banks were not able to provide enough senior debt to leverage the deal.  A familiar story.  

According to this report from the Financial Post, small to mid-market firms continue to aggressively pursue buyouts.  These deals require far less debt to execute and can rely more on mezzanine financing to structure a deal while securing the required returns.

The Day the Baton Passed

Michael Power is with us today as guest blogger. He has a take on the world economy that every North American should understand:

As a sporting spectacle, 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. 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 that baton having been dropped by the US Men’s and Women’s Teams in the 4x100m relay heats in Beijing – by China. The final medal table of the 29th Olympiad may yet come to symbolise the start of this hand-over process.

Final Medals Tally
1 China
2 United States
3 Russian Federation.
4 Great Britain
5 Germany

Many in the West probably still think – and the lazy love of the familiar more than brute logic is often the father of such 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.

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 confidence, it can cut gorges through the granite of counter-logic in forcing its way to 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. So as one zone waxes, the other wanes.

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. Indeed, 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 emerging splendour is surely 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 – may ultimately not be sustainable either.

The near mirror-image of these two faces of post-1989 global economic development – one built on using debt to consume tomorrow’s income today, the other built on using today’s savings to build an income-rich tomorrow – was a convenient liaison whilst it lasted, but eventually the complementarities of this so-called Bretton Woods II arrangement were outweighed by its contradictions.

Destabilized by the detritus of the past year’s credit crunch, the unstable equilibrium that arose from this fantastical arrangement has started to implode. Whether the West overindulged or the East eased up on its self-denial is a moot point. Either way, both ways, the one side no longer got all it wanted from the other: perhaps the East saw the West’s thirst for its exported manufactures being slaked, or perhaps the West saw the East’s demand for its debt instruments decline.

As one side pulled back, by definition, so too did the other: the credit that the East extended to the West had been recycled by the West to buy products from the East, thereby creating arguably the largest vendor financing scheme in history. Reduce the flow of one and you necessarily reduced the flow of the other.

And the result of this reduction? The West in particular is enduring the cold turkey shakes that follow the quick withdrawal of the amphetamines of easy credit. For its part, the East is being forced to move beyond an era where “we make TVs and Americans watch them” to one where they too are tentatively starting to become tele-addicts, which is to say ‘consume’.

Invariably a Newer World is emerging, one where the Western consumer will no longer be able to live off the back of the Eastern saver. And this world will be one where the Western consumer, sans that Eastern credit, will no longer be able to afford an ever increasing standard of living, at least until that consumer has broken his addiction to debt and rediscovered the magic of saving.

Not so in the East. By spending more and saving less, the make-up of Eastern economic growth will change, even slowing from its current plus 10% levels. But, given the scale of reserves the East has squirreled away relative to the emptiness of the Western larder, the East has the wherewithal to keep its GDP growing, its currencies strengthening and its wealth accumulating and do so far more rapidly than will henceforth be possible in the West. Thus will play out the particulars of how the baton of economic leadership will pass not between hands but hemispheres, from West to East. Indeed, China will overtake the US in terms of industrial output next year.

History, with its tidy desire to pinpoint such watershed events, may yet decide that the time and the place when this baton began to be passed was 8pm on 08.08.08, as the Olympic Games opened in Beijing, China.

Where were you when this historic moment happened?

What Every Business Owner Should Know

Why is it that smart business owners resist the idea of bringing in investment partners even if those partners will make them far richer than they could believe possible?

What are the four questions every investor will ask as you present your business and the money you will need to take it to the next level?

What are all the forward thinking owners lookin ginto private equity right now, before they need to retire?

Find out the answer at this radio interview broadcast by the show called Small Business, Big Ideas as David Cohen interviews Jacoline Loewen, author of Money Magnet and partner with the private equity investment company Loewen & Partners.

The Renaissance of the Platinum Age

Though he does point out that it may not be for another year, David Rubenstein co-founder of The Carlyle Group, mentioned last week that "the greatest period [for private equity] is probably ahead of us as you will see the industry coming back into the Platinum Age".  This is not surprising. As noted in previous weeks in this blog, private equity firms are currently raising incredible sums of money right now; when these funds will be discharged is anyone's guess, but informed opinions, such as Mr. Rubenstein's, point to a renaissance in about a year.  

This is not to say that the industry has fallen flat on itself this year, it has simply come to more reasonable levels of activity, compared to years prior.  We saw the prices paid for firms in buyout deals rise significantly last year.  Josh Lerner of the Harvard Business School noted that EBITDA multiples were, on average, 8.3 times earnings before interest, taxes, and depreciation/amortization, however, this was in an environment where returns generated by firms were 25% on average and as much as 40% in the upper stratospheres.  Over the next year, returns are expected to come down from their 25% average to around 14%; still respectable outperformance, but not at the leverage-induced performance of last year.  However, the private equity industry is not experiencing the same hang-over as some of the banks that are forced to write-down significant portions of their balance sheets, but the effect of the tightened credit market is sobering, causing many to point to happier times when billion-dollar buyouts will once again spread the elixer of good fortune.

Finding Private Equity Investors

The number one issue for every entrepreneur is money - getting money, raising money, or convincing investors to give you money - that according to Jacoline Loewen who is one of the Nation’s best known advisors to entrepreneurs who seek capital, venture captial and private equity.business pod cast. Loewen & Partners raises capital for companies with revenues over $10 million.
Listen to Robert Gold to talk about Jacoline's latest book, Money Magnet, which explains how to find private equity investors. This lively interview will appear in a future episode of the BusinessCast podcast.

The UK's Telegraph is reporting that TPG Capital has raised a $20 billion fund, one of the largest ever raised; Blackstone raised the world's largest ($21.7 billion) in August, and Goldman Sachs raised another $20 billion last April.  So what is going on?  Aren't private equity funds suppose to be dwindling without access to the credit they so desperately need from the banks? Apparently not.  

The credit crisis has created enough uncertainty in the public markets that investors are looking to private equity funds for the stability they crave.  Of course, it may be a while until we see the blockbuster, highly leveraged, billion dollar buy-out deals that we saw in 2007's "summer of love" (some say another year), but this does not mean that private equity funds are not active, quite the contrary.  

These funds continue to buy the collateralized debt obligations (CDO) that the banks so desperately look to offload.  Last month Lone Star was the latest private equity fund to buy CDOs from a distressed vendor, Merrill Lynch.  The financial firm sold $7 billion worth of CDOs at 22% of their face value to Lone-Star.  These deals make a very small splash in the pages of newspapers today; part of the credit is due to PE professionals' growing media-savvy in their efforts to keep their faces from front covers, and partly due to the complexity of these deals that really do not make for engaging reading in 500 words or less.

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.