There is a tendency among entrepreneurs to chase money wherever they find it. The pressure to find the financial resources so necessary to build a business can be over-mastering. Most of the time the partnerships which form between founders and angel investors are productive but, in a few cases, I have seen it turn very destructive. Companies that should have realized success have been held back by investor partnerships that have severely limited their potential or, in some cases, doomed them to failure.
Look Beyond the Checkbook
It may be hard to be discriminating when you are in the heat of the ‘money hunt’ but the sins of omission you commit while chasing investors can return ten-fold to destroy any chance of success. The problem become acute because of the incredible range of circumstances, experience and interests that angel investors bring to the table. Their having money to invest in not enough. You need to understand their basic motivations and what is driving them to act as an angel investor. You also need to understand that all investment money is not the same. Some money will help you succeed while other investments will be a poisoned pill that will reduce your chances of building the business you envision. Here are some ‘sacred cows’ that you need to slaughter:
* Angel investors are in it for a return on their investment: Well, how can you argue with that? You would assume that the primary driver is always a return on investment. But, as you will read further on, that is not always the case. I know angel investors who are simply bored and looking for something to do and others who are frustrated CEO-wannabees. For some investors, it is all about a return but for others the return is secondary. You need to sort these two groups out. Do not listen just to what they say; it is what they do that is important.
* They have money they; must be smart: This is another fallacy. Some of the dumbest and most self-destructive people I have ever met are wealthy. I have found only a weak correlation between wealth and intelligence and a slimmer one between wealth and wisdom. Many a destructive hubris has been built on a fat bank account. Investors have an important role in start-ups but pretense, omnipotence or omniscience can warp an investor’s understanding of that role. Smart investors play their part in a highly professional and constructive manner. Seek them out; they are most likely the winners you want to associate with.
* They have been successful in business so they will know how we can be: Past success is not always a good indicator of wisdom going forward. In fact, great success can be counter-productive when they decide to work with start-up companies. I know one investor who continually regales his CEOs with stories of how he ran his company. Of course, the company was running over one hundred million annually when these stories took place. The CEOs, wanting to emulate his success, take steps that are entirely premature. The result is wasted resources and a dysfunctional corporate culture. Past business success is not a good indicator of professional performance as an investor. Remember, you are seeking an investor, not a shadow CEO.
* They will become my close personal friends and advisers: Not a good idea; the correct focus of investors should produce a tension in the relationship with management. If you want a friend, buy a dog.
The Bad and the Very Ugly
The problem with writing about angel investors is that they come in an amazing variety. I have met lots of them and there is always something different about each. The ease of entry into the field may have something to do with it. The only real entry requirement is wealth beyond current needs. That’s all it takes to become an angel investor. There are no educational requirements, courses to take or certifications to merit. Only a bank account and a decision to ‘invest’ are required to hang out a shingle and open up for business. Watch out for the following:
* The Shadow CEO: I have met investors who purposefully pick weak or inexperienced CEOs to work with. Their real agenda is to run your company from the back seat. These investors are very intrusive and will push you to make decisions and commit resources that will put your company at risk. They are mostly successful entrepreneurs who have built and sold a business. In the process, they have lost touch with the necessary energy levels and passion that is essential to building a start-up into a going business. Mostly they remember the later stages of their company and the extended staff they had. Then they turn the CEO into a kind of executive assistant and attempt to run the company by proxy. Most of the companies in the portfolio of this type of investor remain very small. They generally have very complex Excel spreadsheet projections and poor records in meeting them. Stay away from the Shadow CEO; they are very dangerous investors.
* The Crazy, Rich Uncle: This is probably the most dangerous type of angel investor because they are so easy on the management team. They are mostly retired and living comfortably. Their mission in life is to ‘give back to the younger generation’. A clear indication of this type is the total lack of performance metrics and a weak statement of expectations. They can be very seductive to entrepreneurs but there is a dark side. Without stiff set of performance metrics, the company can develop a culture of permissiveness. That will feel good until the money runs out. A key indicator of this type is the feeling that the amounts of money involved are, at least initially, not sufficient to cause them concern. The expenditure patterns are not carefully monitored and discussions do not turn serious until the money is spent and the wolves are at the door. As an entrepreneur, you need to seek out investors who will be hard on you; insisting on strict performance metrics and precise definitions of roles. Take the easy way out and you will be in for a ride to nowhere with a crazy, rich uncle. Sure you will enjoy the ride but, in the end, you will be let off the bus in the middle of nowhere with a tarnished reputation for failure.
* The Gaggle: Remember the old saying about a camel being a horse designed by a committee? These gaggles are fond of that kind of engagement. The investments that they make are very often selected in a very casual way and supervised fairly loosely. The problem comes as the group itself is very loosely organized. Different participants might have significantly different understandings of what it mean to be an investor and what that status entitles them to. The can range from complete indifference to total immersion in the management of the company. This situation can result in lots of pulling and pushing of the management team without an overarching strategic vision. Investments should be made based on clear and concise understandings codified in a detailed investment agreement.
* The Bottom Feeders: You will meet some investors who are really only interested in your intellectual property. They ‘drag the bottom’ of the entrepreneurial community looking for weak teams with good ideas. Mostly they insist that their funding be used to develop the technology rather than developing revenues. Once the money runs out, they regretfully inform management that they are closing the company down and talking the intellectual property as compensation for their investment.
* The Lead Broker: I have seen these lead brokers promote themselves into central roles in companies without putting much of any of their own money on the line. The net result is that the bulk of the investor group gets involved without much direct knowledge of the business or the management team. In one case, such a broker put together an investment in excess of one million dollars without making any investment of his own. He still managed a seat on the board and a dominate role in the management of the company. Be particularly careful of the broker who can invest but does not. This situation can turn nasty if expectations are not met. Finger pointing and recriminations can come to dominate the relationships among the investors. This could seriously damage chances of follow-on investments by the group.
The Good
Good angel investors always take a highly professional approach to the process and their portfolio companies. They generally focus in industries that they are familiar with. It is a good idea to avoid angel investors whose portfolio companies do not fit a close pattern. The best angel investors will often forgo the option of claiming a board seat and, instead, insist that an independent board member with professional experience be appointed. Beware of investors who seem to see investment in your company as an opportunity to enhance their reputation by sitting on yet another board. Here are some positive things to look for:
* Success Breeds Success: There are angel investors who have the knack to help their portfolio companies thrive; while others seem to doom them to failure or stagnation. I know of one angel who specializes in little deals and has a well developed ability to keep them that way. Other investors seem to have the opposite skill. Their companies grow and prosper. It is a good idea to do some diligence on the track record of the investor. Go with the successful ones even if the deal terms are less generous.
* The Investment Agreement: There ought to be a detailed investment agreement agreed to before any funds are transferred. This agreement should be very specific when it comes to the roles and responsibilities of each party. The best agreements provide for an earn-in by management based on performance. It also sets the ground rules for further investment. Good angel investors will require this as a matter of course. The worst ones will simply require a term sheet and then write a check. Remember that the absence of planning is the road to failure. Think of the investment agreement as a strategic plan for the relationship.
* Strategic Agreement on Roles and Responsibilities: Good angel investors will insist that the roles and responsibilities for each party be very well understood from the very beginning. These roles will be codified in the investment agreement and specify the actions that each party will be able to take under a range of possible outcomes. Although such an agreement can complicate initial negotiations, it will help greatly when performance does not meet expectations and realignment become necessary.
* Use of Proceeds: I have seen investors write rather large checks without insisting that there be an agreed upon use of proceeds. You can imagine what happened then. Entrepreneurs initially like the freedom to simply take the money and spend it as they see fit. But, more often than not, this leads to waste and spending on things that do not connect directly to the success of the company. One company, upon receiving funds in this way, spent a lot of the money on new laptops and cell phones with expensive service plans. They replaced very serviceable units. Another CEO kept paying his salary, even through results fell far below projections, and failed to pay suppliers. The result was a law suit that is almost certain to shut down the company. It is good business practice for the angel investors to insist on a detailed use of proceeds and for control over the spending of their money.
* Insistence on Performance Metrics: As a CEO you should be insisting on performance metrics for every member of your team. That is just good management. Your investors should take the same approach. It may seem initially easier to deal with angel investors who are very lax about this, but it is far from best practices. I am not just talking about Excel spreadsheet metrics. They have to be much more detailed than that. Good performance metrics detail the responsibilities of each member of the management team and the way their performance will be measured. Everybody from the CEO to the receptionist should have a job description with metrics attached. And the metrics should be sufficiently detailed to drive evaluations based on performance. Performance should be the driver in determining both compensation and earned-in interest in the company. Performance metrics are a sign of a professional and productive organization. Start-ups with that culture have a much higher chance of success.
* Focus on Governance Issues and Oversight: “Who’s minding the store?” If the answer to that question is “nobody but us entrepreneurs”, consider that a red flag. In the short-term, it may feel good to be free from oversight but, in the long-term, you are guaranteed to make more mistakes and waste more opportunities. The board of directors has a very important role to fill in any corporate structure and it is not just making sure that the investors get to a liquidity event as soon as possible. Good governance means overseeing the strategic planning process, dealing with issues of succession, audit and compensation, and providing for the protections and expansion of shareholder value. This fiduciary relationship with the shareholders is an important part of the corporate structure. Without it, management is under no effective supervision and the investment looks more like a roll of the dice than an investment.
Keep This In Mind
An angel investment creates a relationship that will help determine how successful you are going to be. Your skill in crafting that relationship is a test of how dedicated you are to the success of your company and team. If you take the easy way out, your chances of success will drop significantly. If you opt for the limp relationship with an inattentive investor, your prospects will suffer. Angel investors, the good ones, bring much more than money to the table. The good ones have helped their companies succeed and will help you do the same.
Wednesday, December 30, 2009
Tuesday, December 29, 2009
bureacracy
It's really easy to make fun of big businesses. With all
their bureaucracy, they tend to move very slowly. And they
tend to be difficult to work with.
But there's one thing that big businesses typically do much
better than smaller companies. And that is conducting
employee performance reviews.
In fact, many smaller businesses focus so much on solving
day to day crises, that conducting employee reviews falls by
the wayside.
Which leads to problems. Lots of problems.
Here's why:
Companies that succeed have strategic plans.
And, when you conduct periodic employee performance
reviews, you ensure that your employees have objectives that
are congruent with your company's strategic plan.
So rather than employees focusing on tasks that they think
are right, you ensure that they accomplish the tasks that
really allow your company to grow and profit.
Without performance reviews, you get lots of problems.
Management gets frustrated because employees are not
achieving key objectives. And employees get frustrated
because they don't know if they're doing a good job or not.
Interestingly, when I recently interviewed Mike Carden,
co-founder of performance management review company Sonar6,
he told me that most employees really like performance
reviews, even when they are underperforming.
He said, "It's sort of like playing golf. Even if you don't
play great, you want to know your score at the end."
Carden gave me some other great tips on conducting
performance reviews to ensure that you get the most out of
your employees and your company achieves its objectives.
Among other things, Carden mentioned that reviews should
typically be done monthly and should take no more than 20-30
minutes per employee.
By getting into the habit of conducting monthly performance
reviews, you ensure that your employees remain focused on
the RIGHT objectives and that you reward them and/or improve
their performance more quickly.
To Your Success!
their bureaucracy, they tend to move very slowly. And they
tend to be difficult to work with.
But there's one thing that big businesses typically do much
better than smaller companies. And that is conducting
employee performance reviews.
In fact, many smaller businesses focus so much on solving
day to day crises, that conducting employee reviews falls by
the wayside.
Which leads to problems. Lots of problems.
Here's why:
Companies that succeed have strategic plans.
And, when you conduct periodic employee performance
reviews, you ensure that your employees have objectives that
are congruent with your company's strategic plan.
So rather than employees focusing on tasks that they think
are right, you ensure that they accomplish the tasks that
really allow your company to grow and profit.
Without performance reviews, you get lots of problems.
Management gets frustrated because employees are not
achieving key objectives. And employees get frustrated
because they don't know if they're doing a good job or not.
Interestingly, when I recently interviewed Mike Carden,
co-founder of performance management review company Sonar6,
he told me that most employees really like performance
reviews, even when they are underperforming.
He said, "It's sort of like playing golf. Even if you don't
play great, you want to know your score at the end."
Carden gave me some other great tips on conducting
performance reviews to ensure that you get the most out of
your employees and your company achieves its objectives.
Among other things, Carden mentioned that reviews should
typically be done monthly and should take no more than 20-30
minutes per employee.
By getting into the habit of conducting monthly performance
reviews, you ensure that your employees remain focused on
the RIGHT objectives and that you reward them and/or improve
their performance more quickly.
To Your Success!
happy holiday
Happy Holidays!
I really started getting in the holiday spirit the other
day when I watched an amazing program called CNN Heroes.
The CNN Heroes project honors individuals throughout the
globe whose charitable work has really helped others.
The show highlighted 10 finalists who have accomplished
everything from educating the poor to providing clean water
to individuals in need.
While all the individuals honored were amazing, there was
one statement by one of the finalists that stood out. This
statement was made by breast cancer survivor Andrea Ivory.
Ms. Ivory was fortunate enough to have had health
insurance, gotten a mammogram and caught her breast cancer
early.
Since then, she has developed mobile mammography vans that
provide no-cost screenings in Miami, Florida. Every day she
is providing early breast cancer detection services that are
saving lives.
So, what did Ms. Ivory say that I found so enlightening?
She said, "Most people, when they find out they have breast
cancer, say 'why me'; I said 'what for'!"
There it is. Two simple words - "what for."
It is these two words that separate winners from losers.
Losers complain. They blame others for their problems and
situations.
Winners, on the other hand, are optimists. If something bad
happens, they ask "what for?" And then they figure it out.
They use adversity to create opportunity. They build better
mousetraps out of necessity. And they inspire others.
My New Year's resolution, which I have already started
doing, is to always ask "what for" whenever something
doesn't go quite right.
I hope that you can do the same.
Then we can all continue to make progress in our personal
and business lives, overcome obstacles, and create
opportunities that allow us and those around us to shine.
To Your Success!
I really started getting in the holiday spirit the other
day when I watched an amazing program called CNN Heroes.
The CNN Heroes project honors individuals throughout the
globe whose charitable work has really helped others.
The show highlighted 10 finalists who have accomplished
everything from educating the poor to providing clean water
to individuals in need.
While all the individuals honored were amazing, there was
one statement by one of the finalists that stood out. This
statement was made by breast cancer survivor Andrea Ivory.
Ms. Ivory was fortunate enough to have had health
insurance, gotten a mammogram and caught her breast cancer
early.
Since then, she has developed mobile mammography vans that
provide no-cost screenings in Miami, Florida. Every day she
is providing early breast cancer detection services that are
saving lives.
So, what did Ms. Ivory say that I found so enlightening?
She said, "Most people, when they find out they have breast
cancer, say 'why me'; I said 'what for'!"
There it is. Two simple words - "what for."
It is these two words that separate winners from losers.
Losers complain. They blame others for their problems and
situations.
Winners, on the other hand, are optimists. If something bad
happens, they ask "what for?" And then they figure it out.
They use adversity to create opportunity. They build better
mousetraps out of necessity. And they inspire others.
My New Year's resolution, which I have already started
doing, is to always ask "what for" whenever something
doesn't go quite right.
I hope that you can do the same.
Then we can all continue to make progress in our personal
and business lives, overcome obstacles, and create
opportunities that allow us and those around us to shine.
To Your Success!
networking tip
There are two types of people in this world: Life Givers and Life Suckers.
Life Suckers complain constantly about their problems, yet never seem to want to do anything concrete to solve them. They’re exhausting to be around, can ruin even the most beautiful day, and will literally “suck the life” out of you if you give them half a chance.
Life Givers, on the other hand, understand the power of reciprocity, and use it to their advantage. Life Givers know that what goes around comes around. They’re always in the top 10 percent of all sales people, because they understand the importance of building, maintaining and, especially, sharing their network.
Don’t hoard your contacts. Open your proverbial Rolodex, and start making introductions. Be the first at an event or party to provide a contact to someone you’ve just met, rather than waiting for them to give you something first. Once you start sharing your contacts and making connections with and for others, your clients and contacts will soon start returning the favor, and you’ll find your network will grow – and your business soar – faster than you ever thought possible.
Speaking of networking, here are a few ideas to help you connect with those who can help your business succeed:
- Go to the same events over and over again, to become familiar with – and to – the other attendees. After all, no matter how efficiently you can “work a room,” you’re not going to meet all the important people at an association event the first time out.
- Offer to help first. Instead of going into a conversation to see what they can do for you, ask: “If I could do one thing that would help your business, what would it be?”
- Go to every event with a clear goal. Plan to meet five people, collect five business cards, and make five introductions. Then, when you get back to the office, send a hand-written thank-you card to everyone you’ve met.
Life Suckers complain constantly about their problems, yet never seem to want to do anything concrete to solve them. They’re exhausting to be around, can ruin even the most beautiful day, and will literally “suck the life” out of you if you give them half a chance.
Life Givers, on the other hand, understand the power of reciprocity, and use it to their advantage. Life Givers know that what goes around comes around. They’re always in the top 10 percent of all sales people, because they understand the importance of building, maintaining and, especially, sharing their network.
Don’t hoard your contacts. Open your proverbial Rolodex, and start making introductions. Be the first at an event or party to provide a contact to someone you’ve just met, rather than waiting for them to give you something first. Once you start sharing your contacts and making connections with and for others, your clients and contacts will soon start returning the favor, and you’ll find your network will grow – and your business soar – faster than you ever thought possible.
Speaking of networking, here are a few ideas to help you connect with those who can help your business succeed:
- Go to the same events over and over again, to become familiar with – and to – the other attendees. After all, no matter how efficiently you can “work a room,” you’re not going to meet all the important people at an association event the first time out.
- Offer to help first. Instead of going into a conversation to see what they can do for you, ask: “If I could do one thing that would help your business, what would it be?”
- Go to every event with a clear goal. Plan to meet five people, collect five business cards, and make five introductions. Then, when you get back to the office, send a hand-written thank-you card to everyone you’ve met.
attitude
95 percent of all the top performers I interview tell me that the number one contributor to their success is Attitude.
I know you’ve heard that before. But take a moment and actually think about it. Are you so certain of your ability to hide a sour mood or personal annoyance, that you’re willing to risk losing a sale if you’re wrong?
The fact of the matter is, unless your last name is Streep, Brando or De Niro, your thoughts will affect your behavior. In other words, we always move toward our most dominant thought. So make sure you play that positive tape in your mind, and don’t let yourself get caught up in any negativity around you.
If you do find yourself slipping into a negative frame of mind, try some of these tried-and-true ideas to help you snap out of it, and put your best foot forward:
- Listen to music (though your favorite Death Metal CD may not be appropriate at this time)
- Exercise
- Have a quick meeting or phone call with a positive person (moods are contagious)
- Read something inspiring, like Earl Nightingale’s The Strangest Secret, or even Scott Adam’s Dilbert cartoons to give yourself a good laugh
- Eat (my husband can tell you how quickly my mood can turn negative when I skip lunch)
- Call your favorite customer
- Sit quietly on your own, close your eyes and visualize yourself doing something successfully. Then repeat the scene over and over again in your mind.
In short, show your customer how you feel by being at the top of your mental game. Close business by projecting a sincerely happy persona, not hiding a negative attitude behind a facade. And above all else, either love what you do, or get out.
I know you’ve heard that before. But take a moment and actually think about it. Are you so certain of your ability to hide a sour mood or personal annoyance, that you’re willing to risk losing a sale if you’re wrong?
The fact of the matter is, unless your last name is Streep, Brando or De Niro, your thoughts will affect your behavior. In other words, we always move toward our most dominant thought. So make sure you play that positive tape in your mind, and don’t let yourself get caught up in any negativity around you.
If you do find yourself slipping into a negative frame of mind, try some of these tried-and-true ideas to help you snap out of it, and put your best foot forward:
- Listen to music (though your favorite Death Metal CD may not be appropriate at this time)
- Exercise
- Have a quick meeting or phone call with a positive person (moods are contagious)
- Read something inspiring, like Earl Nightingale’s The Strangest Secret, or even Scott Adam’s Dilbert cartoons to give yourself a good laugh
- Eat (my husband can tell you how quickly my mood can turn negative when I skip lunch)
- Call your favorite customer
- Sit quietly on your own, close your eyes and visualize yourself doing something successfully. Then repeat the scene over and over again in your mind.
In short, show your customer how you feel by being at the top of your mental game. Close business by projecting a sincerely happy persona, not hiding a negative attitude behind a facade. And above all else, either love what you do, or get out.
Monday, December 21, 2009
Protecting & Monetizing Your Equity & Fixed Income Portfolios Without The Use of Derivatives or Hedging
Many high net worth individuals and family trusts have a significant portion of their wealth allocated to portfolios consisting of marketable equities and fixed income securities. This may be either in the form of a single concentrated stock position or a diversified portfolio of various securities. These securities may have been acquired through the sale of a family business, through years of accumulating assets through disciplined investing, acquired through the exercise of employee stock options, or by out-right inheritance. Given recent market volatility, many have seen their investment portfolios decrease significantly in value. Traditionally, there were few options available to protect against such declines in the overall value of an individual’s investment portfolio or concentrated stock position. One option is to hedge against downside risk by purchasing “puts”. However, this is a sub-optimal mechanism since options pricing during volatile markets can be very costly, and moreover, it can be difficult to administer on a diversified portfolio. Another option available to investors is to “collar” their existing position by buying a put and simultaneously selling a call option with identical maturity dates to off-set the cost of purchasing the put option. However, this is also a sub-optimal strategy in that it limits the upside potential in the future appreciation of the underlying equity, it is difficult to administer on a diversified investment portfolio, due to the “straddle rules” results in the dividends paid being taxed at ordinary income tax rates rather than the capital gain tax rate applied to qualified dividends, and it is coming under increased scrutiny by the Internal Revenue Service under the “constructive sales” rules. Finally, an investor could enter into a derivative trade by shorting an index (e.g. S&P 500). However, this too requires a significant out-of-pocket expense on the part of the investor, and it may not directly correlate to the price fluctuation of the investor’s underlying stock portfolio.
As an alternative to the protective strategies listed above, an investor could enter into a “pledge agreement” with a re-insurance company, whereby the investor would pledge their securities to the reinsurer in exchange for a non-recourse loan. Based on the trading volume and volatility of the underlying stock portfolio, the investor would receive a non-recourse loan in the amount of 75%-85% of the portfolio’s present value. Since the agreement is structured as a traditional loan, it is not considered a sale or transfer of beneficial ownership for either IRS or SEC purposes. The loan is also designed to be non-purpose so that the cash proceeds may be used by the investor for any means he or she desires. Since the loan is structured to be non-recourse, it has the additional benefit of creating a “synthetic put” without the investor incurring the cost of purchasing a put option in the market. Furthermore, as the transaction is structured as a pledge of the underlying shares, no change in beneficial ownership occurs. The investor retains all voting rights, dividends, and unlimited future appreciation of the underlying stock portfolio.
To best understand how the mechanics of this transaction works, it is essential to understand how various financial institutions earn profits. Traditionally, there are four forms of financial institutions; banks, trust companies, broker-dealers and insurance companies. The first group, banks, earns money by making business and consumer loans. In order to make such loans, they need to have sufficient capital reserves in the form of deposits which are strictly regulated by the Federal Government. The bank then makes a profit based on the spread between what it charges in interest on the loans it makes to consumers and businesses and the interest it pays out on its deposit accounts. Secondly there are trust companies that essentially act similar to bank, however they also earn fees by being named as trustee over potentially multi-generational family trusts. They then oversee the investment of these trust assets according to terms of the trust document and in accordance with their own conservative investment philosophies. The third form of financial institution, the broker-dealer, essentially matches buyers and sellers in the market. The broker-dealer then makes a commission on the transaction based on the size or value of the trade. This commission can either take the form of a one-time fee or an on-going charge based on the total assets under management. Broker-dealers therefore typically have “use” of the shares of stock held in accounts at their institutions to facilitate such transactions. Few investors realize that broker-dealers are constantly using the shares of stock the investor has on deposit in their account to make markets for the underlying securities. The final group, insurance companies, or in this case re-insurance companies, earns money by underwriting policies and collecting premiums based on the value of the policies they underwrite. Much like banks, in order to write new policies, insurance companies must have the statutory capital to support the underlying risk associated with those policies. This statutory capital requirement is also strictly regulated by the Federal Government with ongoing review by the insurance company’s actuaries and analysts. Much like a broker-dealer, when an investor “pledges” their marketable securities to the insurance company, the investor essentially allows the insurance company the use, not ownership, of their securities for the term of the pledge agreement. The insurance company can then leverage the use of those securities, now considered statutory capital for purposes of writing new policies. Since the agreement is deemed a pledge, and not a sale or transfer, the investor’s securities are not deemed assets of the insurance company and are not subject to the creditors of the company.
Although each transaction is unique and is designed to be a private transaction between two parties (that is to say, it is not a mass market product, rather a negotiated agreement between two independent parties), it might prove helpful to discuss a typical transaction. The first step in the transaction is for the investor to enter into a pledge agreement with the re-insurance company. This agreement essentially grants the re-insurance company dominion and control over the collateral, which is a “perfected interest” for regulatory purposes, but not a transfer of ownership. Thus, the reinsurance company derives the benefit of the use of the underlying securities. This is the “bookable event” to which the regulators look to in order to establish the asset’s value for purposes of the re-insurance company’s statutory capital requirement. Much like leasing a commercial office building, the leassor has use of the office space during the term of the agreement, but does not have an ownership interest in the underlying building. Therefore, although the re-insurance company derives the benefit of the underlying securities as statutory capital during the term of the pledge agreement, all incidents of ownership remain with the investor.
The second step (done simultaneously with the first) is for the re-insurance company to loan the investor an amount in cash today equal to 75% to 85% of the current fair-market value based on the trading price of the underlying securities. This loan is structured as a non-recourse interest-only note typically for a period of three or more years. The interest rate charged on the loan is based on the 3-month LIBOR rate (currently about 1.25%), plus a spread of between 50 and 100 basis points. Although this is a “floating” interest rate, the agreement provides that at no point will the interest rate charged on the outstanding principal exceed 100 basis points above the initial contract amount. Thus, there is a cap in the amount the rate can increase pursuant to the agreement. Since re-insurance companies are not in the business of making loans, rather writing new policies, the re-insurance company is merely passing along its cost of capital to the investor. Thus, the investor is getting the added benefit of being availed the opportunity to borrow at institutional rates rather than individual rates, which traditionally are much higher. Going back to the point of non-purpose, the investor now has the cash proceeds from the loan to do with as he or she pleases. This includes paying down other debt, making other investments, or even personal spending. So long as the investor makes the quarterly interest payments in a timely manner, the re-insurance company will not foreclose on the loan and sell the underlying collateral. Furthermore, on dividend or interest paying securities, the annual yield is usually sufficient to cover the cost of the quarterly interest payments.
At expiration, the investor has three options. First, the investor may simply pay off the principal balance of the loan and receive their securities back in kind. The second option is to re-document the pledge and loan agreement based on the new value of the underlying equity portfolio. Essentially, the investor has the right to “refinance” the loan and pledge agreements. Assuming the value of the portfolio has increased, the investor can then drawdown more money based on the portfolio’s appreciated value and lock-in a higher non-recourse loan.
Finally, if the investment portfolio or concentrated stock position has decreased in value below the level of the initial loan principal, the investor has the option to just keep the non-recourse loan proceeds and “put” the stock to the re-insurance company. It should be pointed out that this alternative may have significant income tax, and in the case of a company insider, potential SEC filing consequences, and therefore should be carefully considered with the investor’s legal and tax advisors. However, since the loan is non-recourse, the re-insurance company only has the underlying securities to look to as collateral for the loan. It cannot hold the investor liable for any shortfall between the portfolio’s value and the principal outstanding on the non-recourse loan. In this aspect, this structure is far superior to a traditional margin account in that margin balances are still “recourse” to the investor. If the stock drops significantly in value, the bank or broker-dealer retains the right to look to the investor personally for making good on the loan as a whole. Also, in the instance of a margin call, the investor is required to infuse additional capital from other sources, or required to sell a portion of the underlying securities at depressed market values. An additional benefit of this structure is that unlike a collar, pre-paid forward contract, or interest rate swap, there is no off-setting derivative trade in this structure. Therefore, each of these options is also available to the investor at anytime during the term of the agreement and there is no pre-payment penalty for unwinding the contract early.
There are several situations where this structure is the ideal transaction for the individual high net worth investor. Initially, it is well suited for the entrepreneurial business owner who has just sold his/her private company to a publically traded company in exchange for stock. Since the entrepreneur is no-longer in control of the company and most likely had much of their net-worth tied up in their business, he or she would want to protect against the potential downside risk in their newly acquired stock. This is especially true if there is a “lock-up” period associated with the transaction whereby the individual is precluded from selling shares for a certain period. Another situation is the individual investor who has a significant margin position against their marketable portfolio and is now perhaps receiving margin calls. This structure would allow the investor to convert their margin balance to a non-recourse loan with a higher LTV and at a lower interest rate. A third situation is a significant shareholder in a non-dividend paying stock that could use this strategy to create a “synthetic dividend”. This could be accomplished by taking advantage of the interest rate arbitrage between the 3-month LIBOR rate plus the spread charged on the loan principal, and the interest that can be earned on other investments currently available in the market. The final situation is any investor who is concerned with the potential downside risk currently associated with their investment portfolio. This investor can use this structure to create a “synthetic put”, below which value he or she is guaranteed their investment portfolio will not decrease. The investor is also able to accomplish this without having to incur the out-of-pocket cost typically associated with purchasing such insurance in the open market.
In summary, a privately structured stock pledge and loan agreement has many benefits to investors over the traditional structures used to protect the investor against the downside risk in their equity and fixed income portfolios or monetize the securities in their portfolio. First, it allows the investor to borrow money today on a non-recourse basis, thus creating a synthetic put value on the investor’s total portfolio without having to incur the cost of purchasing a put in the open market. Second, it allows the investor to limit their downside risk in their portfolio without giving up any of the upside potential appreciation of the underlying securities. Third, the investor is able to monetize their portfolio on a non-recourse basis at a much higher loan-to-value level than traditional margin accounts and at significantly lower interest rates. Also, since the loan is non-recourse, there will never be a margin call requirement to infuse more capital into the account, so long as the investor continues to make the timely interest payments. Fourth, the transaction is structured as a loan with sufficient downside exposure and unlimited upside potential so as not to fall under the constructive sales rules of the IRS. Next, since beneficial ownership of the stock does not change, all incidents of ownership remain with the investor and the stock is merely pledged to the re-insurance company. As a result, there is no Form 4 filing requirement for SEC purposes. Lastly, as there is no off-setting counter position, the investor retains the right to unwind the transaction at any point during the term of the pledge agreement without incurring a pre-payment penalty.
A Privately Structured Stock Pledge & Loan Agreement Benefits the Investor
1. By protecting the current value of an investor’s portfolio of concentrated stock position.
2. By creating liquidity without having to sell the investor’s underlying portfolio.
3. By creating a “synthetic” cash dividend on a non-dividend paying security.
4. By increasing the current dividend yield on an annual basis.
5. By enabling an investor to diversify their overall investment portfolio.
6. By reducing interest expense on other loans.
7. By preventing distressed sales due to margin call requirements.
8. By deferring capital gains taxes.
As an alternative to the protective strategies listed above, an investor could enter into a “pledge agreement” with a re-insurance company, whereby the investor would pledge their securities to the reinsurer in exchange for a non-recourse loan. Based on the trading volume and volatility of the underlying stock portfolio, the investor would receive a non-recourse loan in the amount of 75%-85% of the portfolio’s present value. Since the agreement is structured as a traditional loan, it is not considered a sale or transfer of beneficial ownership for either IRS or SEC purposes. The loan is also designed to be non-purpose so that the cash proceeds may be used by the investor for any means he or she desires. Since the loan is structured to be non-recourse, it has the additional benefit of creating a “synthetic put” without the investor incurring the cost of purchasing a put option in the market. Furthermore, as the transaction is structured as a pledge of the underlying shares, no change in beneficial ownership occurs. The investor retains all voting rights, dividends, and unlimited future appreciation of the underlying stock portfolio.
To best understand how the mechanics of this transaction works, it is essential to understand how various financial institutions earn profits. Traditionally, there are four forms of financial institutions; banks, trust companies, broker-dealers and insurance companies. The first group, banks, earns money by making business and consumer loans. In order to make such loans, they need to have sufficient capital reserves in the form of deposits which are strictly regulated by the Federal Government. The bank then makes a profit based on the spread between what it charges in interest on the loans it makes to consumers and businesses and the interest it pays out on its deposit accounts. Secondly there are trust companies that essentially act similar to bank, however they also earn fees by being named as trustee over potentially multi-generational family trusts. They then oversee the investment of these trust assets according to terms of the trust document and in accordance with their own conservative investment philosophies. The third form of financial institution, the broker-dealer, essentially matches buyers and sellers in the market. The broker-dealer then makes a commission on the transaction based on the size or value of the trade. This commission can either take the form of a one-time fee or an on-going charge based on the total assets under management. Broker-dealers therefore typically have “use” of the shares of stock held in accounts at their institutions to facilitate such transactions. Few investors realize that broker-dealers are constantly using the shares of stock the investor has on deposit in their account to make markets for the underlying securities. The final group, insurance companies, or in this case re-insurance companies, earns money by underwriting policies and collecting premiums based on the value of the policies they underwrite. Much like banks, in order to write new policies, insurance companies must have the statutory capital to support the underlying risk associated with those policies. This statutory capital requirement is also strictly regulated by the Federal Government with ongoing review by the insurance company’s actuaries and analysts. Much like a broker-dealer, when an investor “pledges” their marketable securities to the insurance company, the investor essentially allows the insurance company the use, not ownership, of their securities for the term of the pledge agreement. The insurance company can then leverage the use of those securities, now considered statutory capital for purposes of writing new policies. Since the agreement is deemed a pledge, and not a sale or transfer, the investor’s securities are not deemed assets of the insurance company and are not subject to the creditors of the company.
Although each transaction is unique and is designed to be a private transaction between two parties (that is to say, it is not a mass market product, rather a negotiated agreement between two independent parties), it might prove helpful to discuss a typical transaction. The first step in the transaction is for the investor to enter into a pledge agreement with the re-insurance company. This agreement essentially grants the re-insurance company dominion and control over the collateral, which is a “perfected interest” for regulatory purposes, but not a transfer of ownership. Thus, the reinsurance company derives the benefit of the use of the underlying securities. This is the “bookable event” to which the regulators look to in order to establish the asset’s value for purposes of the re-insurance company’s statutory capital requirement. Much like leasing a commercial office building, the leassor has use of the office space during the term of the agreement, but does not have an ownership interest in the underlying building. Therefore, although the re-insurance company derives the benefit of the underlying securities as statutory capital during the term of the pledge agreement, all incidents of ownership remain with the investor.
The second step (done simultaneously with the first) is for the re-insurance company to loan the investor an amount in cash today equal to 75% to 85% of the current fair-market value based on the trading price of the underlying securities. This loan is structured as a non-recourse interest-only note typically for a period of three or more years. The interest rate charged on the loan is based on the 3-month LIBOR rate (currently about 1.25%), plus a spread of between 50 and 100 basis points. Although this is a “floating” interest rate, the agreement provides that at no point will the interest rate charged on the outstanding principal exceed 100 basis points above the initial contract amount. Thus, there is a cap in the amount the rate can increase pursuant to the agreement. Since re-insurance companies are not in the business of making loans, rather writing new policies, the re-insurance company is merely passing along its cost of capital to the investor. Thus, the investor is getting the added benefit of being availed the opportunity to borrow at institutional rates rather than individual rates, which traditionally are much higher. Going back to the point of non-purpose, the investor now has the cash proceeds from the loan to do with as he or she pleases. This includes paying down other debt, making other investments, or even personal spending. So long as the investor makes the quarterly interest payments in a timely manner, the re-insurance company will not foreclose on the loan and sell the underlying collateral. Furthermore, on dividend or interest paying securities, the annual yield is usually sufficient to cover the cost of the quarterly interest payments.
At expiration, the investor has three options. First, the investor may simply pay off the principal balance of the loan and receive their securities back in kind. The second option is to re-document the pledge and loan agreement based on the new value of the underlying equity portfolio. Essentially, the investor has the right to “refinance” the loan and pledge agreements. Assuming the value of the portfolio has increased, the investor can then drawdown more money based on the portfolio’s appreciated value and lock-in a higher non-recourse loan.
Finally, if the investment portfolio or concentrated stock position has decreased in value below the level of the initial loan principal, the investor has the option to just keep the non-recourse loan proceeds and “put” the stock to the re-insurance company. It should be pointed out that this alternative may have significant income tax, and in the case of a company insider, potential SEC filing consequences, and therefore should be carefully considered with the investor’s legal and tax advisors. However, since the loan is non-recourse, the re-insurance company only has the underlying securities to look to as collateral for the loan. It cannot hold the investor liable for any shortfall between the portfolio’s value and the principal outstanding on the non-recourse loan. In this aspect, this structure is far superior to a traditional margin account in that margin balances are still “recourse” to the investor. If the stock drops significantly in value, the bank or broker-dealer retains the right to look to the investor personally for making good on the loan as a whole. Also, in the instance of a margin call, the investor is required to infuse additional capital from other sources, or required to sell a portion of the underlying securities at depressed market values. An additional benefit of this structure is that unlike a collar, pre-paid forward contract, or interest rate swap, there is no off-setting derivative trade in this structure. Therefore, each of these options is also available to the investor at anytime during the term of the agreement and there is no pre-payment penalty for unwinding the contract early.
There are several situations where this structure is the ideal transaction for the individual high net worth investor. Initially, it is well suited for the entrepreneurial business owner who has just sold his/her private company to a publically traded company in exchange for stock. Since the entrepreneur is no-longer in control of the company and most likely had much of their net-worth tied up in their business, he or she would want to protect against the potential downside risk in their newly acquired stock. This is especially true if there is a “lock-up” period associated with the transaction whereby the individual is precluded from selling shares for a certain period. Another situation is the individual investor who has a significant margin position against their marketable portfolio and is now perhaps receiving margin calls. This structure would allow the investor to convert their margin balance to a non-recourse loan with a higher LTV and at a lower interest rate. A third situation is a significant shareholder in a non-dividend paying stock that could use this strategy to create a “synthetic dividend”. This could be accomplished by taking advantage of the interest rate arbitrage between the 3-month LIBOR rate plus the spread charged on the loan principal, and the interest that can be earned on other investments currently available in the market. The final situation is any investor who is concerned with the potential downside risk currently associated with their investment portfolio. This investor can use this structure to create a “synthetic put”, below which value he or she is guaranteed their investment portfolio will not decrease. The investor is also able to accomplish this without having to incur the out-of-pocket cost typically associated with purchasing such insurance in the open market.
In summary, a privately structured stock pledge and loan agreement has many benefits to investors over the traditional structures used to protect the investor against the downside risk in their equity and fixed income portfolios or monetize the securities in their portfolio. First, it allows the investor to borrow money today on a non-recourse basis, thus creating a synthetic put value on the investor’s total portfolio without having to incur the cost of purchasing a put in the open market. Second, it allows the investor to limit their downside risk in their portfolio without giving up any of the upside potential appreciation of the underlying securities. Third, the investor is able to monetize their portfolio on a non-recourse basis at a much higher loan-to-value level than traditional margin accounts and at significantly lower interest rates. Also, since the loan is non-recourse, there will never be a margin call requirement to infuse more capital into the account, so long as the investor continues to make the timely interest payments. Fourth, the transaction is structured as a loan with sufficient downside exposure and unlimited upside potential so as not to fall under the constructive sales rules of the IRS. Next, since beneficial ownership of the stock does not change, all incidents of ownership remain with the investor and the stock is merely pledged to the re-insurance company. As a result, there is no Form 4 filing requirement for SEC purposes. Lastly, as there is no off-setting counter position, the investor retains the right to unwind the transaction at any point during the term of the pledge agreement without incurring a pre-payment penalty.
A Privately Structured Stock Pledge & Loan Agreement Benefits the Investor
1. By protecting the current value of an investor’s portfolio of concentrated stock position.
2. By creating liquidity without having to sell the investor’s underlying portfolio.
3. By creating a “synthetic” cash dividend on a non-dividend paying security.
4. By increasing the current dividend yield on an annual basis.
5. By enabling an investor to diversify their overall investment portfolio.
6. By reducing interest expense on other loans.
7. By preventing distressed sales due to margin call requirements.
8. By deferring capital gains taxes.
We enjoyed meeting with you yesterday and believe there might be several areas where we can be of assistance to each other. These are outlined below in no particular order.
· Private Capital Markets (PCM) Program: This program provides clients with all the tools to meet and close on private accredited investors. Our fixed fee/monthly retainer program: (i) assists clients in refining and improving their executive summaries and pro formas, (ii) provides clients with the necessary documents such as private placement memorandums, subscription agreements, investor questionnaires, etc needed to meet requirements, (iii) assists clients in identifying potential accredited investors and strategic partners from their current sphere of influence, (iv) provides clients with VCI’s list of accredited investors and institutions, (v) provides the client with form letters, investor presentations and power point templates to be used in investor meetings and calls and (vi) provides on-going support through this process. We are not bakers and do not “raise” the dough. We assist the clients in preparing the right materials and coach them through the process. The company is ultimately responsible for the close and raise of the money. As an added benefit to this program we have added (at no additional cost to the client) our introductory PR program for the first three months which our PR department will work with the client to develop 2-3 press releases over the initial three months of our agreement which will promote the client’s goods and services. This will not only provide support for the product but should help in name recognition when the client is meeting with potential investors.
· International Capital Markets Program: This program is designed to help clients access capital markets in other countries through our relationships with foreign investment bankers. One of current programs is the Open Market (OM) in Germany. This program is relatively in expensive and quicker than current public markets. We have a relationship with one of the 74 approved listing partners in Germany that can navigate the process of listing the company’s shares on the OM and then provide the company a road show and pr to promote the shares in Germany and surrounds. This process is designed to assist growing companies the opportunity to access accredited investors and institutions in Germany to raise $500,000 to $3,000,000. Our role is to assist the company in developing the initial package to the listing partner to garner its approval and to assist the company in the preparation of the due diligence package to the listing partner and the OM. We are paid a modest flat fee from the company. We also receive compensation form the listing partner.
· Franchise Development Program: We assist companies in the franchise development program from inception to sales. Our program in concert with the company: (i) develops the necessary and required franchise development documents such as the franchise disclosure document and the Operations Manual, (ii) assists in the development of a marketing plan and the related materials, (iii) assists the company in identifying a national sales director (NSD) to be hired by the company, (iv) works with the NSD to develop a national network of sales agents (v) provides on-going support to the company and (vi) provides the company access to discounted media and our PR program to support the company’s efforts. These services are provided on a flat fee and monthly retainer basis.
· Credit Facility Program: We have developed in concert with a lender a program designed to help companies with short term or revolving loan needs. This program is asset based and can be used for hard assets as well as Purchase Orders (Letter of Credit) and Accounts Receivables. Asset requirements include that the assets can not be held more than 180 days (preference is for under 90 days) and must be in first position. Terms are usually 4-5 points up front and 1 point per month on outstanding monies. Loan is for one year and renewable. Loans range from $1-10M.
· Public Relations: We provide clients with public relations support at all levels. Our public relations director has over 25 years of experience and tailors a program for each client’s needs and budget.
These programs are on a fixed fee basis, with the exception of the Credit Facility Program. We do not take a transaction fee out of any equity program. Our standard agreement with all of referral agents is twenty percent of the fees we receive (not out of expenses). Any client you forward to us we would pay you a twenty percent referral fee. To the extent we refer a client to you we would ask for the same consideration.
With your background in placing deals we believe you could be a good resource for our PCM Program clients.
On a separate note we have clients that come to us that have very interesting programs and ideas and need usually $100,000-$250,000 to either complete the product, generate revenues or a marketing plan. With these monies they could qualify for our OM program or our Franchise Program. These amounts as you know are difficult to find and require as much time as a $1M+ request. Our thoughts for a while have been that if we could put together a small fund $2.5M-$5M to start we could generate a significant flow of business. The program would include a convertible debenture, warrants and points with an exit strategy of an OM deal or an IPO for which we would handle. In our conversations you mentioned how you tried to put together a large fund ($200M +) but had trouble, a smaller amount which would assist smaller growth companies with well defined exit strategies but be a better goal. We would propose that the four of us establish this fund. Once you have had a chance to review this outline please give me a call.
Thanks
T DUFFY
· Private Capital Markets (PCM) Program: This program provides clients with all the tools to meet and close on private accredited investors. Our fixed fee/monthly retainer program: (i) assists clients in refining and improving their executive summaries and pro formas, (ii) provides clients with the necessary documents such as private placement memorandums, subscription agreements, investor questionnaires, etc needed to meet requirements, (iii) assists clients in identifying potential accredited investors and strategic partners from their current sphere of influence, (iv) provides clients with VCI’s list of accredited investors and institutions, (v) provides the client with form letters, investor presentations and power point templates to be used in investor meetings and calls and (vi) provides on-going support through this process. We are not bakers and do not “raise” the dough. We assist the clients in preparing the right materials and coach them through the process. The company is ultimately responsible for the close and raise of the money. As an added benefit to this program we have added (at no additional cost to the client) our introductory PR program for the first three months which our PR department will work with the client to develop 2-3 press releases over the initial three months of our agreement which will promote the client’s goods and services. This will not only provide support for the product but should help in name recognition when the client is meeting with potential investors.
· International Capital Markets Program: This program is designed to help clients access capital markets in other countries through our relationships with foreign investment bankers. One of current programs is the Open Market (OM) in Germany. This program is relatively in expensive and quicker than current public markets. We have a relationship with one of the 74 approved listing partners in Germany that can navigate the process of listing the company’s shares on the OM and then provide the company a road show and pr to promote the shares in Germany and surrounds. This process is designed to assist growing companies the opportunity to access accredited investors and institutions in Germany to raise $500,000 to $3,000,000. Our role is to assist the company in developing the initial package to the listing partner to garner its approval and to assist the company in the preparation of the due diligence package to the listing partner and the OM. We are paid a modest flat fee from the company. We also receive compensation form the listing partner.
· Franchise Development Program: We assist companies in the franchise development program from inception to sales. Our program in concert with the company: (i) develops the necessary and required franchise development documents such as the franchise disclosure document and the Operations Manual, (ii) assists in the development of a marketing plan and the related materials, (iii) assists the company in identifying a national sales director (NSD) to be hired by the company, (iv) works with the NSD to develop a national network of sales agents (v) provides on-going support to the company and (vi) provides the company access to discounted media and our PR program to support the company’s efforts. These services are provided on a flat fee and monthly retainer basis.
· Credit Facility Program: We have developed in concert with a lender a program designed to help companies with short term or revolving loan needs. This program is asset based and can be used for hard assets as well as Purchase Orders (Letter of Credit) and Accounts Receivables. Asset requirements include that the assets can not be held more than 180 days (preference is for under 90 days) and must be in first position. Terms are usually 4-5 points up front and 1 point per month on outstanding monies. Loan is for one year and renewable. Loans range from $1-10M.
· Public Relations: We provide clients with public relations support at all levels. Our public relations director has over 25 years of experience and tailors a program for each client’s needs and budget.
These programs are on a fixed fee basis, with the exception of the Credit Facility Program. We do not take a transaction fee out of any equity program. Our standard agreement with all of referral agents is twenty percent of the fees we receive (not out of expenses). Any client you forward to us we would pay you a twenty percent referral fee. To the extent we refer a client to you we would ask for the same consideration.
With your background in placing deals we believe you could be a good resource for our PCM Program clients.
On a separate note we have clients that come to us that have very interesting programs and ideas and need usually $100,000-$250,000 to either complete the product, generate revenues or a marketing plan. With these monies they could qualify for our OM program or our Franchise Program. These amounts as you know are difficult to find and require as much time as a $1M+ request. Our thoughts for a while have been that if we could put together a small fund $2.5M-$5M to start we could generate a significant flow of business. The program would include a convertible debenture, warrants and points with an exit strategy of an OM deal or an IPO for which we would handle. In our conversations you mentioned how you tried to put together a large fund ($200M +) but had trouble, a smaller amount which would assist smaller growth companies with well defined exit strategies but be a better goal. We would propose that the four of us establish this fund. Once you have had a chance to review this outline please give me a call.
Thanks
T DUFFY
Wednesday, December 16, 2009
ANALYSIS
I read a very interesting blog post the other day about "survivor bias," an important statistical principle that could greatly affect your future success.
In brief, survivor bias occurs when an analysis excludes information since that information no longer exists.
Let me give you an example...
The English forces, during World War II, sent planes each day to bomb the Germans. As you might expect, several of these planes were shot down. And, the ones that did come back typically returned with multiple bullet holes.
Now, the English obviously wanted to maximize the chances of its planes and soldiers returning home. So English engineers studied the planes that returned. In doing so, they found patterns among the bullet holes. Specifically they found lots of holes on the wings and tail of the plan, but few in the cockpit or fuel tanks.
As a result, the English added armored plating to the wings and tail.
As you might have already concluded, this was the wrong thing to do. The better decision would have been to add armored plating to the cockpit and fuel tanks. For, the planes that were shot in those places were the planes that were shot down and never returned.
The English engineers' analysis missed this data because these were the planes that they were unable to examine. This is "survivor bias"-- their inability to include this critical data in their analysis since it was unavailable or didn't "survive."
So why does this matter to you?
It matters because as you start and/or grow your businesses, you will have to hire service providers and staff. And naturally, you will want to hire those with a track record of success.
But, when you hire staff who have only worked at successful companies, you may fall victim to survivor bias. That is, they have not learned many of the lessons that individuals and companies learn when they fail.
Likewise, when you hire a service provider that claims that every one of their clients has been successful, maybe they haven't learned from client failures.
They say that you learn more from failure than from success.
While that can be debated, from personal experience I can say that I've learned a ton from both failure and success. From successes, I have learned principles and formulas that worked. The ones I strive to replicate on a daily basis.
And from failures, I have learned things to avoid. I have learned flaws in my thinking. But importantly, many of my successes have come out of failure. From tinkering ideas and plans that weren't quite working. And making them work. And, these new ideas would never have come to me had I not failed first.
Now, clearly my advice is not to hire failures or those with a habit of failure. But, likewise, it's not to hire staff or service providers who claim to always succeed. Since a balance between success and failure often provides that winning combination of wisdom.
So, the next time you are interviewing a key hire or service provider, make sure to ask about their failures. Ask about tasks and jobs that they or their companies failed at. And find out what they learned from that failure.
Ideally they are the types of candidates that learned a lot from their failures and were able to overcome them. This is because the vast majority of growing companies fail at things over and over again. It is their ability to constantly modify and improve their businesses that enables them to excel. Surround yourself with people that have this ability.
In brief, survivor bias occurs when an analysis excludes information since that information no longer exists.
Let me give you an example...
The English forces, during World War II, sent planes each day to bomb the Germans. As you might expect, several of these planes were shot down. And, the ones that did come back typically returned with multiple bullet holes.
Now, the English obviously wanted to maximize the chances of its planes and soldiers returning home. So English engineers studied the planes that returned. In doing so, they found patterns among the bullet holes. Specifically they found lots of holes on the wings and tail of the plan, but few in the cockpit or fuel tanks.
As a result, the English added armored plating to the wings and tail.
As you might have already concluded, this was the wrong thing to do. The better decision would have been to add armored plating to the cockpit and fuel tanks. For, the planes that were shot in those places were the planes that were shot down and never returned.
The English engineers' analysis missed this data because these were the planes that they were unable to examine. This is "survivor bias"-- their inability to include this critical data in their analysis since it was unavailable or didn't "survive."
So why does this matter to you?
It matters because as you start and/or grow your businesses, you will have to hire service providers and staff. And naturally, you will want to hire those with a track record of success.
But, when you hire staff who have only worked at successful companies, you may fall victim to survivor bias. That is, they have not learned many of the lessons that individuals and companies learn when they fail.
Likewise, when you hire a service provider that claims that every one of their clients has been successful, maybe they haven't learned from client failures.
They say that you learn more from failure than from success.
While that can be debated, from personal experience I can say that I've learned a ton from both failure and success. From successes, I have learned principles and formulas that worked. The ones I strive to replicate on a daily basis.
And from failures, I have learned things to avoid. I have learned flaws in my thinking. But importantly, many of my successes have come out of failure. From tinkering ideas and plans that weren't quite working. And making them work. And, these new ideas would never have come to me had I not failed first.
Now, clearly my advice is not to hire failures or those with a habit of failure. But, likewise, it's not to hire staff or service providers who claim to always succeed. Since a balance between success and failure often provides that winning combination of wisdom.
So, the next time you are interviewing a key hire or service provider, make sure to ask about their failures. Ask about tasks and jobs that they or their companies failed at. And find out what they learned from that failure.
Ideally they are the types of candidates that learned a lot from their failures and were able to overcome them. This is because the vast majority of growing companies fail at things over and over again. It is their ability to constantly modify and improve their businesses that enables them to excel. Surround yourself with people that have this ability.
Tuesday, December 15, 2009
power
The Power of Togetherness!
Have you ever had an idea, a plan or just wanted to do something that you felt you couldn’t. Do you feel like you cannot accomplish your goal alone or maybe just feel it would be more fun and exciting if you had someone else to share it?
I had that feeling once. I felt so alone. I use to sit alone in my room so full of inspiration and the most creative ideas. Ideas that I knew if were put into fruition would be huge. Not only huge but would be projects where people were working together in their experts fields in harmony. At that time I had no one to share my amazing ideas with and felt because it was only me that I couldn’t accomplish.
We have all worked for employers or are currently working for employers and are well aware that most employers today treat us as a number. We go to work punch in, do whatever we are assigned and then check out. We separate our work from our lives. We work as an individual or “me against the corporate world”. There is no ownership, no team effort and most importantly no “togetherness”
As a society today I feel that we lack a basic human characteristic and that is the power of “togetherness”. We forgot somewhere along our journey that we are all one. All cut from the same mold, or created from the same source. We are not separate from each other, we are not in competition with each other and we all have individual strengths that if nurtured and used to work together as a team could accomplish the world, our dreams and maybe actually fulfill that thing that we all seem to be searching for called Happiness!
Well my friends I figured this out at a very young age but for some reason through my life’s journey had never found a group of people who felt the same. Everyone’s attitude was “me, me, and me”. No one was interested in entertaining the idea of “togetherness” because; why would they help me? What would they get from it? If they helped me that would take the spotlight off of them and perhaps keep them from getting that promotion that they have been searching for and when they get it will realize that it wasn’t quite what they were expecting. Believe me, I have been there.
I chose not to be part of this team. I chose not to belong to these groups of egotistical humans whose main purpose is to step on others and use them and their skill set to raise themselves above others. It always made me feel sad that people spent their time trying to step on others or one up them to get a head or what they thought was a head anyway.
NEWS FLASH!
We are not above anyone. We are all equal. We are all born with the same opportunity in life, regardless of where we are born, the colour of our skin, our sexual preference, our social background etc. It is our responsibility as human’s beings to work together as a team. To lift each other up and to work together to achieve a brighter future, for love, for peace, for happiness, for joy and for prosperity.
Our team a VividLife – http:// www.vividlife.me is a pure example of what the power of working together can accomplish. We come from all different walks of life and backgrounds but all bring our unique strengths and expertise to the team and together we are moving mountains.
Just over four months ago we began to work together on a vision to provide the world with an online resource and social media forum giving the globe access to a wonderful world of self empowerment and “Yes We Cans” so that together one heart, one moment at a time we can inspire positive change in the world.
Since then we have managed to launch an extremely
successful online radio station – VividLife Radio - www.vividliferadio.com where we have interviewed the very top guru’s in the self help world and have manage to attract a growing list of more and more.
Our VividLife – http://www.vividlife.me team is diligently working together to launch the worlds first and foremost best life resource to show the world what the power of togetherness can accomplish.
We are developing the most amazing community of conscious minded spiritual beings covering everything from Health & Wellness, Spirituality, Personal Growth, and Whole Family to Healthy Pets, Inspired Business and beyond.
Stay tuned for upcoming travel, conferences, tele-seminars and an amazing line up of absolutely inspiring radio shows.
In our world there is no such word as competition, only collaboration. Make it your world too.
Open your hearts world because here we come!
You’re amazing my friend, keep shining!
Have you ever had an idea, a plan or just wanted to do something that you felt you couldn’t. Do you feel like you cannot accomplish your goal alone or maybe just feel it would be more fun and exciting if you had someone else to share it?
I had that feeling once. I felt so alone. I use to sit alone in my room so full of inspiration and the most creative ideas. Ideas that I knew if were put into fruition would be huge. Not only huge but would be projects where people were working together in their experts fields in harmony. At that time I had no one to share my amazing ideas with and felt because it was only me that I couldn’t accomplish.
We have all worked for employers or are currently working for employers and are well aware that most employers today treat us as a number. We go to work punch in, do whatever we are assigned and then check out. We separate our work from our lives. We work as an individual or “me against the corporate world”. There is no ownership, no team effort and most importantly no “togetherness”
As a society today I feel that we lack a basic human characteristic and that is the power of “togetherness”. We forgot somewhere along our journey that we are all one. All cut from the same mold, or created from the same source. We are not separate from each other, we are not in competition with each other and we all have individual strengths that if nurtured and used to work together as a team could accomplish the world, our dreams and maybe actually fulfill that thing that we all seem to be searching for called Happiness!
Well my friends I figured this out at a very young age but for some reason through my life’s journey had never found a group of people who felt the same. Everyone’s attitude was “me, me, and me”. No one was interested in entertaining the idea of “togetherness” because; why would they help me? What would they get from it? If they helped me that would take the spotlight off of them and perhaps keep them from getting that promotion that they have been searching for and when they get it will realize that it wasn’t quite what they were expecting. Believe me, I have been there.
I chose not to be part of this team. I chose not to belong to these groups of egotistical humans whose main purpose is to step on others and use them and their skill set to raise themselves above others. It always made me feel sad that people spent their time trying to step on others or one up them to get a head or what they thought was a head anyway.
NEWS FLASH!
We are not above anyone. We are all equal. We are all born with the same opportunity in life, regardless of where we are born, the colour of our skin, our sexual preference, our social background etc. It is our responsibility as human’s beings to work together as a team. To lift each other up and to work together to achieve a brighter future, for love, for peace, for happiness, for joy and for prosperity.
Our team a VividLife – http:// www.vividlife.me is a pure example of what the power of working together can accomplish. We come from all different walks of life and backgrounds but all bring our unique strengths and expertise to the team and together we are moving mountains.
Just over four months ago we began to work together on a vision to provide the world with an online resource and social media forum giving the globe access to a wonderful world of self empowerment and “Yes We Cans” so that together one heart, one moment at a time we can inspire positive change in the world.
Since then we have managed to launch an extremely
successful online radio station – VividLife Radio - www.vividliferadio.com where we have interviewed the very top guru’s in the self help world and have manage to attract a growing list of more and more.
Our VividLife – http://www.vividlife.me team is diligently working together to launch the worlds first and foremost best life resource to show the world what the power of togetherness can accomplish.
We are developing the most amazing community of conscious minded spiritual beings covering everything from Health & Wellness, Spirituality, Personal Growth, and Whole Family to Healthy Pets, Inspired Business and beyond.
Stay tuned for upcoming travel, conferences, tele-seminars and an amazing line up of absolutely inspiring radio shows.
In our world there is no such word as competition, only collaboration. Make it your world too.
Open your hearts world because here we come!
You’re amazing my friend, keep shining!
Monday, December 14, 2009
attitude
"It's All Thought & Attitude" - Dr. Wayne Dyer
"We Become What We Think About" - Earl Nightingale
"Thoughts Are Things" - Napoleon Hill
Definitions:
Attitude - "A position or bearing indicating action, feeling or mood." - (Websters's Dictionary)
Thought - "Highest form of energy that never dies." - (Dr. Wayne Dyer)
Idea - "A thought propelled into action by a plea from the imagination" - (Napoleon Hill)
Keep these simple laws in mind when interacting with others, setting goals, giving and receiving and promoting yourself, your company and your products.
Five Laws of Wealth
1. Law of Value
Your true worth is determined by how much more you give in value than you take in payment.
2. Law of Compensation
Your Income is determined by how many people you serve and how well you serve them.
3. Law of Influence
Your influence is determined by how abundantly you place others' interests first.
4.Law of Authenticity
The most valuable gift you have to offer is yourself.
5. Law of Receptivity
The KEY to effective giving is to stay open to receiving.
"We Become What We Think About" - Earl Nightingale
"Thoughts Are Things" - Napoleon Hill
Definitions:
Attitude - "A position or bearing indicating action, feeling or mood." - (Websters's Dictionary)
Thought - "Highest form of energy that never dies." - (Dr. Wayne Dyer)
Idea - "A thought propelled into action by a plea from the imagination" - (Napoleon Hill)
Keep these simple laws in mind when interacting with others, setting goals, giving and receiving and promoting yourself, your company and your products.
Five Laws of Wealth
1. Law of Value
Your true worth is determined by how much more you give in value than you take in payment.
2. Law of Compensation
Your Income is determined by how many people you serve and how well you serve them.
3. Law of Influence
Your influence is determined by how abundantly you place others' interests first.
4.Law of Authenticity
The most valuable gift you have to offer is yourself.
5. Law of Receptivity
The KEY to effective giving is to stay open to receiving.
Wednesday, December 9, 2009
ideas
When I was younger, I had four full-time jobs before I
started my first business.
Looking back, in none of these jobs did my managers ask for
my ideas or suggestions. Nope - my ideas simply didn't
matter. Even though I had a lot of them. And many were ideas
that could have really helped those companies.
So what did I do?
I left. I left those jobs until I found one where all of my
ideas would receive the proper attention - running my own
company.
But now that I'm running my company, I can't make the same
mistake that my past employers made. That is, I must
challenge my employees and encourage their ideas and
suggestions.
Why? Well for numerous critical reasons according to
award-winning author and professor Dr. Alan Robinson who I
recently interviewed.
Specifically, according to Dr. Robinson's vast research,
85% of new ideas at companies come from front-line
employees. Yes, the employees that are interfacing with
customers and vendors, and employees that are manufacturing
your products or cleaning your facilities come up with the
vast majority of your best ideas.
Which is very interesting and dispels the myth that most
great ideas are generated by CEOs and top managers. This
makes sense though. Entrepreneurs and founders come up with
ideas to form companies. But then they must eventually
transform into managers of their organizations. In doing so,
they move farther away from the front-line operations,
making it harder for them to innovate themselves.
Which is why great entrepreneurs make innovation a key part
of their organizations.
According to Dr. Robinson, the first key to effectively
integrating idea generation and innovation into
organizations is "alignment." Alignment simply means that
everyone in the organization knows the goals of the
organization, and what goals new ideas should aim to solve.
In an example of poor alignment, he mentioned the angry CEO
who found a note in the suggestion box to "offer different
flavors of peanut butter in the cafeteria." Clearly, this
CEO, and not the employee, is at fault for not aligning his
organization around its key objectives.
The second key to effective idea generation is to establish
systems or processes. These systems do not have to be formal
or costly. For example, giving employees 30 minutes/week to
discuss new ideas is enough for them to 1) know that they
should always be thinking of new ideas, 2) that their ideas
are valued, and 3) that they have a formal opportunity to
discuss their ideas.
Implementing idea generation programs not only results in
great new ideas that allow companies to outperform
competitors. But they result in dramatically higher employee
satisfaction and morale.
In fact, one of the top reasons employees give for quitting
a job is that management didn't take their ideas seriously.
When employees are asked to submit ideas, given time and/or
incentives to submit ideas, and see their ideas implemented,
they become much more committed to their organizations and
perform better.
So, as you grow your organization, be sure to implement
formal processes for company idea generation. Fortunately
these processes are easy to implement, and will have
multiple benefits to your bottom line.
To Your Success!
started my first business.
Looking back, in none of these jobs did my managers ask for
my ideas or suggestions. Nope - my ideas simply didn't
matter. Even though I had a lot of them. And many were ideas
that could have really helped those companies.
So what did I do?
I left. I left those jobs until I found one where all of my
ideas would receive the proper attention - running my own
company.
But now that I'm running my company, I can't make the same
mistake that my past employers made. That is, I must
challenge my employees and encourage their ideas and
suggestions.
Why? Well for numerous critical reasons according to
award-winning author and professor Dr. Alan Robinson who I
recently interviewed.
Specifically, according to Dr. Robinson's vast research,
85% of new ideas at companies come from front-line
employees. Yes, the employees that are interfacing with
customers and vendors, and employees that are manufacturing
your products or cleaning your facilities come up with the
vast majority of your best ideas.
Which is very interesting and dispels the myth that most
great ideas are generated by CEOs and top managers. This
makes sense though. Entrepreneurs and founders come up with
ideas to form companies. But then they must eventually
transform into managers of their organizations. In doing so,
they move farther away from the front-line operations,
making it harder for them to innovate themselves.
Which is why great entrepreneurs make innovation a key part
of their organizations.
According to Dr. Robinson, the first key to effectively
integrating idea generation and innovation into
organizations is "alignment." Alignment simply means that
everyone in the organization knows the goals of the
organization, and what goals new ideas should aim to solve.
In an example of poor alignment, he mentioned the angry CEO
who found a note in the suggestion box to "offer different
flavors of peanut butter in the cafeteria." Clearly, this
CEO, and not the employee, is at fault for not aligning his
organization around its key objectives.
The second key to effective idea generation is to establish
systems or processes. These systems do not have to be formal
or costly. For example, giving employees 30 minutes/week to
discuss new ideas is enough for them to 1) know that they
should always be thinking of new ideas, 2) that their ideas
are valued, and 3) that they have a formal opportunity to
discuss their ideas.
Implementing idea generation programs not only results in
great new ideas that allow companies to outperform
competitors. But they result in dramatically higher employee
satisfaction and morale.
In fact, one of the top reasons employees give for quitting
a job is that management didn't take their ideas seriously.
When employees are asked to submit ideas, given time and/or
incentives to submit ideas, and see their ideas implemented,
they become much more committed to their organizations and
perform better.
So, as you grow your organization, be sure to implement
formal processes for company idea generation. Fortunately
these processes are easy to implement, and will have
multiple benefits to your bottom line.
To Your Success!
ROI
Measuring return on investment (ROI) in marketing is an important and complicated issue. As with any other investment, businesses want to know they are getting value and increasing their bottom line. However, there are some fundamental differences between marketing and financial investments.
Marketing ROI isn’t straightforward. Different companies have different needs. Some sell expensive durable goods that are bought infrequently. Others sell packaged goods that can fly off the shelves. Still others sell business services with high acquisition costs and need to build long term relationships; the initial sale isn’t worth much. In fact new customers often have negative initial economic value.
So it is not surprising that evaluating ROI is confusing. Approaches can vary from an assistant with an excel sheet to sophisiticated software and high priced consultants.
The most important thing to remember about Marketing ROI is that there is no perfect formula. You have to choose the method that best fits your needs. A good place to start is to clarify what you want to achieve.
Company Strategy
How a business approaches ROI will depend a great deal on company strategy. Harvard professor Michael Porter lists three types of strategies:
Cost Leadership: Companies with a cost leadership strategy tend to be more focused on direct response advertising, so the ROI picture is somewhat clearer. Direct Response is fairly easy to measure.
Focus: Companies that focus on a particular market segment usually have limited marketing budgets. They are either regionally focused or cater to a particular type of customer. The marketing ROI equation is somewhat simplified for companies with a focused strategy. They don’t have that much going on.
Differentiation: Companies with differentiation strategies are the most marketing intensive. Their success depends on consumers believing that they offer something better than their competitors do.
Brands that seek to differentiate themselves need to build passion and desire for their brand. This strategy can be immensely profitable because consumers are willing to pay a premium for brands that they love and trust. Strong brands also tend to have lower acquisition costs.
For companies with a differentiation strategy, marketing ROI doesn’t just involve sales, but the perception of their brand that leads to sales. They track not only brand awareness, but also “brand attributes” – what people think about their brand. For instance, McDonald’s tracks attributes such as perception of value, quality, taste, “good for kids”, etc.
Marketing ROI for a differentiation strategy is complicated further if it involves a durable good with a long product cycle (i.e. cars, home appliances, etc.). Consumers who desire their product might be years away from a purchase decision.
Four Basic Approaches to Marketing ROI
Timelines: Making a timeline of marketing actions can be very useful. You can see what you did, when you did it and track response, such as sales, inquiries to the call center, etc. By comparing marketing inputs and outputs you can get a sense of what drives sales. If you can identify a correlation, the math is pretty straightforward and you can get a good idea of what drives your ROI.
While the approach has the virtue of simplicity, it also has its problems. For instance, a timeline only shows when the action happened, not how intense or how long it was. Furthermore, if there is a lot of activity, the timeline becomes unreadable and loses the virtue of clarity.
Grids: Because of the limitations of timelines, many marketers use grids. They are very easy to make in excel and you can overlay activities of different durations.
Moreover, additional information can be inserted into the grid. For instance, you can show that you bought 200 GRP’s of TV per week for 5 weeks and also ten monthly magazine insertions and 1 million banner impressions per week for six weeks. Grids retain much of the simplicity of timelines and contain much more information and flexibility.
However, grids too have their drawbacks. How should intensity be measured? For TV, is GRP the right metric to use, or should it be coverage at a discreet frequency or share of spend in the category? For internet, should banner shows be in the grid? Clicks? Registrations?
Grids also can also get cluttered and confusing. For some very active brands, they become enormous and unwieldy.
Tracking and Two-Variable Modeling: Another approach is to track all activity using a variety of metrics. With tracking, you lose the visual simplicity of grids, but you can include as much data as you want.
You don’t have to guess beforehand what you think will be most relevant. After tracking for six months or so, you should have enough data to build two-variable econometric models. (For more on models, see Less Numbers – More Math).
Two variable models require some mathematical sophistication, but can be done in excel. No expensive software is required. There are some subjective decisions to be made about which model to fit, but common sense goes a long way. Usually the simplest model is best.
Once you find a good model, you can derive the equation and significantly increase efficiency through better planning. However, two variable modeling can be very labor intensive. You need to try a number of variants before you find one that fits well enough to be useful.
Unfortunately, if there is too much market activity, it will be hard to find a two-variable model that explains more than 50% of the variation in the data. A model that offers more doubt than certainty is of questionable value.
Multivariate Modeling: Some of the world’s premier marketers use multivariate modeling. While prohibitively expensive for most companies, you can include a variety of marketing and economic factors and get much better models than you can using only two-variables.
However, multivariate models are extremely complex. PhD level mathematicians need to be contracted. Moreover, designing a good model is as much art as it is science. Those that build the model have to understand the business and the business people who use the model need some understanding of how it works.
For a successful multivariate effort, the rare combination of high level quantitative skills and street level business acumen is essential. That’s difficult to achieve.
Furthermore, even the best models will fail at some point. As markets evolve, success factors change. The world is a messy place.
Beware of Easy Answers
Often, the story is more complicated than it seems at first. Years ago, I had a magazine consulting client who was experiencing a fall in copy sales. Because there were no new launches in their category and they had no change in their marketing strategy they assumed that their product needed to be reworked.
It turned out that, although they hadn’t altered their marketing intensity, competitive activity had doubled. Comparatively, my client’s marketing activity had dropped in half. By raising their marketing budget to meet the competition, they were able to reverse the slide and maintain the integrity of their product.
It’s because of the complexities described above that ROI is probably the most difficult and contentious issue in the marketing arena today. There are many ways to get it wrong and very few ways to get it right.
Some Common Sense ROI Rules to Follow
Keep it as simple as you can: One core principle of econometrics is to always use the simplest model that explains the data adequately. If you’re getting reasonably good insight with a simple process, there is no point in trying to be more sophisticated.
Define your goals: No ROI process can explain everything. While a perfume brand might want to focus on consumer perception a retail business will focus more on direct sales. You can’t optimize your marketing strategy for everything. Managing a business is about making choices.
Check your work: Once you believe that you have identified a factor that drives your marketing performance, try to get the same result using a different method. When evaluating marketing ROI, it’s easy to get false positives.
Avoid bias: If at all possible, people who are implementing campaigns shouldn’t be responsible for evaluating them. Suppliers, for the most part, shouldn’t even bother with ROI. Unless there is a very integrated relationship with the client the analysis will be ignored at best. At worst, it can be selectively used against you.
Eventually your model will fail: Even the best models are based on past experience and any bearing on future performance is tentative. A failed model shouldn’t necessarily be seen as a bad thing. It is a signal that the basis of competition has changed, and that is very important for a marketer to know.
I hope this has been helpful.
Marketing ROI isn’t straightforward. Different companies have different needs. Some sell expensive durable goods that are bought infrequently. Others sell packaged goods that can fly off the shelves. Still others sell business services with high acquisition costs and need to build long term relationships; the initial sale isn’t worth much. In fact new customers often have negative initial economic value.
So it is not surprising that evaluating ROI is confusing. Approaches can vary from an assistant with an excel sheet to sophisiticated software and high priced consultants.
The most important thing to remember about Marketing ROI is that there is no perfect formula. You have to choose the method that best fits your needs. A good place to start is to clarify what you want to achieve.
Company Strategy
How a business approaches ROI will depend a great deal on company strategy. Harvard professor Michael Porter lists three types of strategies:
Cost Leadership: Companies with a cost leadership strategy tend to be more focused on direct response advertising, so the ROI picture is somewhat clearer. Direct Response is fairly easy to measure.
Focus: Companies that focus on a particular market segment usually have limited marketing budgets. They are either regionally focused or cater to a particular type of customer. The marketing ROI equation is somewhat simplified for companies with a focused strategy. They don’t have that much going on.
Differentiation: Companies with differentiation strategies are the most marketing intensive. Their success depends on consumers believing that they offer something better than their competitors do.
Brands that seek to differentiate themselves need to build passion and desire for their brand. This strategy can be immensely profitable because consumers are willing to pay a premium for brands that they love and trust. Strong brands also tend to have lower acquisition costs.
For companies with a differentiation strategy, marketing ROI doesn’t just involve sales, but the perception of their brand that leads to sales. They track not only brand awareness, but also “brand attributes” – what people think about their brand. For instance, McDonald’s tracks attributes such as perception of value, quality, taste, “good for kids”, etc.
Marketing ROI for a differentiation strategy is complicated further if it involves a durable good with a long product cycle (i.e. cars, home appliances, etc.). Consumers who desire their product might be years away from a purchase decision.
Four Basic Approaches to Marketing ROI
Timelines: Making a timeline of marketing actions can be very useful. You can see what you did, when you did it and track response, such as sales, inquiries to the call center, etc. By comparing marketing inputs and outputs you can get a sense of what drives sales. If you can identify a correlation, the math is pretty straightforward and you can get a good idea of what drives your ROI.
While the approach has the virtue of simplicity, it also has its problems. For instance, a timeline only shows when the action happened, not how intense or how long it was. Furthermore, if there is a lot of activity, the timeline becomes unreadable and loses the virtue of clarity.
Grids: Because of the limitations of timelines, many marketers use grids. They are very easy to make in excel and you can overlay activities of different durations.
Moreover, additional information can be inserted into the grid. For instance, you can show that you bought 200 GRP’s of TV per week for 5 weeks and also ten monthly magazine insertions and 1 million banner impressions per week for six weeks. Grids retain much of the simplicity of timelines and contain much more information and flexibility.
However, grids too have their drawbacks. How should intensity be measured? For TV, is GRP the right metric to use, or should it be coverage at a discreet frequency or share of spend in the category? For internet, should banner shows be in the grid? Clicks? Registrations?
Grids also can also get cluttered and confusing. For some very active brands, they become enormous and unwieldy.
Tracking and Two-Variable Modeling: Another approach is to track all activity using a variety of metrics. With tracking, you lose the visual simplicity of grids, but you can include as much data as you want.
You don’t have to guess beforehand what you think will be most relevant. After tracking for six months or so, you should have enough data to build two-variable econometric models. (For more on models, see Less Numbers – More Math).
Two variable models require some mathematical sophistication, but can be done in excel. No expensive software is required. There are some subjective decisions to be made about which model to fit, but common sense goes a long way. Usually the simplest model is best.
Once you find a good model, you can derive the equation and significantly increase efficiency through better planning. However, two variable modeling can be very labor intensive. You need to try a number of variants before you find one that fits well enough to be useful.
Unfortunately, if there is too much market activity, it will be hard to find a two-variable model that explains more than 50% of the variation in the data. A model that offers more doubt than certainty is of questionable value.
Multivariate Modeling: Some of the world’s premier marketers use multivariate modeling. While prohibitively expensive for most companies, you can include a variety of marketing and economic factors and get much better models than you can using only two-variables.
However, multivariate models are extremely complex. PhD level mathematicians need to be contracted. Moreover, designing a good model is as much art as it is science. Those that build the model have to understand the business and the business people who use the model need some understanding of how it works.
For a successful multivariate effort, the rare combination of high level quantitative skills and street level business acumen is essential. That’s difficult to achieve.
Furthermore, even the best models will fail at some point. As markets evolve, success factors change. The world is a messy place.
Beware of Easy Answers
Often, the story is more complicated than it seems at first. Years ago, I had a magazine consulting client who was experiencing a fall in copy sales. Because there were no new launches in their category and they had no change in their marketing strategy they assumed that their product needed to be reworked.
It turned out that, although they hadn’t altered their marketing intensity, competitive activity had doubled. Comparatively, my client’s marketing activity had dropped in half. By raising their marketing budget to meet the competition, they were able to reverse the slide and maintain the integrity of their product.
It’s because of the complexities described above that ROI is probably the most difficult and contentious issue in the marketing arena today. There are many ways to get it wrong and very few ways to get it right.
Some Common Sense ROI Rules to Follow
Keep it as simple as you can: One core principle of econometrics is to always use the simplest model that explains the data adequately. If you’re getting reasonably good insight with a simple process, there is no point in trying to be more sophisticated.
Define your goals: No ROI process can explain everything. While a perfume brand might want to focus on consumer perception a retail business will focus more on direct sales. You can’t optimize your marketing strategy for everything. Managing a business is about making choices.
Check your work: Once you believe that you have identified a factor that drives your marketing performance, try to get the same result using a different method. When evaluating marketing ROI, it’s easy to get false positives.
Avoid bias: If at all possible, people who are implementing campaigns shouldn’t be responsible for evaluating them. Suppliers, for the most part, shouldn’t even bother with ROI. Unless there is a very integrated relationship with the client the analysis will be ignored at best. At worst, it can be selectively used against you.
Eventually your model will fail: Even the best models are based on past experience and any bearing on future performance is tentative. A failed model shouldn’t necessarily be seen as a bad thing. It is a signal that the basis of competition has changed, and that is very important for a marketer to know.
I hope this has been helpful.
Tuesday, December 1, 2009
swiss cheese
Have you ever driven somewhere, gotten there, and forgot
about the last minutes of the drive? You know that you were
driving. But your mind must have been somewhere else, since
you can't really remember the turns you made, the lights you
stopped at, etc.
But, I'll bet that never happens to you when you're lost.
When lost, your brain is working overtime to figure out what
to do next.
When I recently interviewed Dr. Neale Martin, he explained
that the difference in the two situations has to do with
which part of your brain you were mostly using. When going
on a routine drive, perhaps from home to work or vice-versa,
you primarily use your subconscious or habitual mind. But
when you are lost, or on the phone while driving, you
primarily use your conscious or executive mind.
Importantly, as Dr. Martin lays out in his book "Habit:
The 95% of Behavior Marketers Ignore," your subconscious or
habitual mind controls the vast majority of human behavior.
For example, when you reach for a carton of milk from the
supermarket, do you really think that much about it? Do you
compare the different brands of milk and think "maybe today
I'll try something new?" Or do you simply pick the same
carton of milk you chose last time, and the time before, and
the time before. Most of us do the latter.
Understanding these habits is critical to entrepreneurs who
want to effectively market their products and services. For
instance, once you sell a product or service, you should
focus on ways to get the customer to buy again and again
from you. According to Dr. Martin, once they buy seven times
from you, buying from you becomes habit.
And so they buy again, and again and again. Until you do
something like raise your prices or interrupt their service,
which causes their executive mind to kick in and consider
alternatives.
Likewise, when marketing a new product, you need to make
sure it jives with people's habits. For example, if people
are used to doing something one way, asking them to do it
another way, even if that way is better, is oftentimes
difficult. Entrepreneurs must make adopting their products
and services as easy as possible and ensure that they don't
contrast sharply to consumers' habits.
So, the next time you are driving and forget where you are
or what you are doing, know that you don't have a Swiss
cheese brain. Rather, you are so used to what you are doing
that you're relying on your habitual mind. And remember, as
a marketer, you must realize that your customers are also
frequently using their habitual minds when making buying
decisions. So, figure out ways to make buying your company's
products and services their habit.
To Your Success!
about the last minutes of the drive? You know that you were
driving. But your mind must have been somewhere else, since
you can't really remember the turns you made, the lights you
stopped at, etc.
But, I'll bet that never happens to you when you're lost.
When lost, your brain is working overtime to figure out what
to do next.
When I recently interviewed Dr. Neale Martin, he explained
that the difference in the two situations has to do with
which part of your brain you were mostly using. When going
on a routine drive, perhaps from home to work or vice-versa,
you primarily use your subconscious or habitual mind. But
when you are lost, or on the phone while driving, you
primarily use your conscious or executive mind.
Importantly, as Dr. Martin lays out in his book "Habit:
The 95% of Behavior Marketers Ignore," your subconscious or
habitual mind controls the vast majority of human behavior.
For example, when you reach for a carton of milk from the
supermarket, do you really think that much about it? Do you
compare the different brands of milk and think "maybe today
I'll try something new?" Or do you simply pick the same
carton of milk you chose last time, and the time before, and
the time before. Most of us do the latter.
Understanding these habits is critical to entrepreneurs who
want to effectively market their products and services. For
instance, once you sell a product or service, you should
focus on ways to get the customer to buy again and again
from you. According to Dr. Martin, once they buy seven times
from you, buying from you becomes habit.
And so they buy again, and again and again. Until you do
something like raise your prices or interrupt their service,
which causes their executive mind to kick in and consider
alternatives.
Likewise, when marketing a new product, you need to make
sure it jives with people's habits. For example, if people
are used to doing something one way, asking them to do it
another way, even if that way is better, is oftentimes
difficult. Entrepreneurs must make adopting their products
and services as easy as possible and ensure that they don't
contrast sharply to consumers' habits.
So, the next time you are driving and forget where you are
or what you are doing, know that you don't have a Swiss
cheese brain. Rather, you are so used to what you are doing
that you're relying on your habitual mind. And remember, as
a marketer, you must realize that your customers are also
frequently using their habitual minds when making buying
decisions. So, figure out ways to make buying your company's
products and services their habit.
To Your Success!
Tuesday, November 24, 2009
client growth
We had to find new clients, serve clients,
develop our website, answer incoming phone calls,
manage the books, pay receivables, negotiate
partnerships, and so on and so on.
Like other successful entrepreneurs, as we grew
our company, we knew we had to hire great people.
There is no way that Jay and I could have
possibly managed everything the company had to
accomplish.
In fact, according to management guru Peter
Drucker, an entrepreneur must narrow their role
as they grow their organizations. The
entrepreneur must focus on the areas that provide
the most value to the organization, and delegate
the rest.
Yes, your ability to determine what to delegate
and to delegate to the right people is the only
way to grow a successful company. As author Jim
Collins states, "the most important decisions
that business people make are not 'what'
decisions, but 'who' decisions." That is,
determining "who" should do the work is
absolutely essential to the work getting done
right, and the company being successful.
As a result, it's no coincidence that new
ventures succeed, or fail, based on the quality
of people they hire. It's no coincidence that
Apple was so successful with a key early employee
like Guy Kawasaki. Or that PayPal was so
successful with Steve Chen, Chad Hurley and Jawed
Karim as key early employees? (Steve, Chad and
Jawed would later found YouTube.)
Simply put, your ability to hire the right people
is absolutely critical to your success as an
entrepreneur.
In order to teach you how to hire like an expert,
I interviewed Dr. Geoff Smart. Dr. Smart is the
Chairman & CEO of ghSMART, which helps companies
and investors identify the right people to hire
to ensure that they can achieve success. He is
also the co-author of the current New York Times
Bestseller "Who: The A Method for Hiring."
Interestingly, part of his research in conducting
his book was interviewing more than 20
billionaires and 60 CEOs, investors, and other
thought leaders, so Dr. Smart was able to learn
real-world methodologies that allow entrepreneurs
like you to hire with precision.
During our interview, Dr. Smart gave tons of
actionable information. Some of the highlights
included:
* Tap referrals when seeking new employees: 77%
of successful hires come through referrals. That
is, by asking your employees and
advisors/friends/colleagues who they know that
could be "rock stars" in the open position, you
can find great talent.
* Don't just create a job description. Rather
than simply creating a job description for your
open position, create a "scorecard." Among other
things, this scorecard should focus on the
desired outcome of the employee. For example,
rather than saying that the employee will be
responsible for calling on prospects in Indiana,
the scorecard must include numeric sales and
prospecting goals (e.g., must make 10 to 15 sales
calls/day and close $250,000 worth of sales each
quarter). Importantly, entrepreneurs should also
use the scorecard to judge employee performance
after hiring them.
* Probe in your interviews. Most interviews don't
unmask the real information and insight you need
to make quality hiring decisions. For example, if
a salesperson said they generated $2 million in
sales in their last job, it might seem very
impressive. But, only by asking the three "P"
questions can you really tell if it was. These
questions include how the $2 million compared to
the Previous year's sales in that territory, how
the $2 million compared to the Planned amount of
sales, and how the $2 million compared to sales
by the individual's Peers.
Dr. Smart made tons of great additional points
that entrepreneurs can use immediately to start
building stronger teams and achieve more success.
In fact, we are in the process of hiring more
customer support staff for entreprenuers University,
and will be employing his techniques immediately.
To Your Success!
--
Venture Capital Intl., Thomas Duffy, CEO
Cell: 203.775.9999
Fax: 203.648.4942
develop our website, answer incoming phone calls,
manage the books, pay receivables, negotiate
partnerships, and so on and so on.
Like other successful entrepreneurs, as we grew
our company, we knew we had to hire great people.
There is no way that Jay and I could have
possibly managed everything the company had to
accomplish.
In fact, according to management guru Peter
Drucker, an entrepreneur must narrow their role
as they grow their organizations. The
entrepreneur must focus on the areas that provide
the most value to the organization, and delegate
the rest.
Yes, your ability to determine what to delegate
and to delegate to the right people is the only
way to grow a successful company. As author Jim
Collins states, "the most important decisions
that business people make are not 'what'
decisions, but 'who' decisions." That is,
determining "who" should do the work is
absolutely essential to the work getting done
right, and the company being successful.
As a result, it's no coincidence that new
ventures succeed, or fail, based on the quality
of people they hire. It's no coincidence that
Apple was so successful with a key early employee
like Guy Kawasaki. Or that PayPal was so
successful with Steve Chen, Chad Hurley and Jawed
Karim as key early employees? (Steve, Chad and
Jawed would later found YouTube.)
Simply put, your ability to hire the right people
is absolutely critical to your success as an
entrepreneur.
In order to teach you how to hire like an expert,
I interviewed Dr. Geoff Smart. Dr. Smart is the
Chairman & CEO of ghSMART, which helps companies
and investors identify the right people to hire
to ensure that they can achieve success. He is
also the co-author of the current New York Times
Bestseller "Who: The A Method for Hiring."
Interestingly, part of his research in conducting
his book was interviewing more than 20
billionaires and 60 CEOs, investors, and other
thought leaders, so Dr. Smart was able to learn
real-world methodologies that allow entrepreneurs
like you to hire with precision.
During our interview, Dr. Smart gave tons of
actionable information. Some of the highlights
included:
* Tap referrals when seeking new employees: 77%
of successful hires come through referrals. That
is, by asking your employees and
advisors/friends/colleagues who they know that
could be "rock stars" in the open position, you
can find great talent.
* Don't just create a job description. Rather
than simply creating a job description for your
open position, create a "scorecard." Among other
things, this scorecard should focus on the
desired outcome of the employee. For example,
rather than saying that the employee will be
responsible for calling on prospects in Indiana,
the scorecard must include numeric sales and
prospecting goals (e.g., must make 10 to 15 sales
calls/day and close $250,000 worth of sales each
quarter). Importantly, entrepreneurs should also
use the scorecard to judge employee performance
after hiring them.
* Probe in your interviews. Most interviews don't
unmask the real information and insight you need
to make quality hiring decisions. For example, if
a salesperson said they generated $2 million in
sales in their last job, it might seem very
impressive. But, only by asking the three "P"
questions can you really tell if it was. These
questions include how the $2 million compared to
the Previous year's sales in that territory, how
the $2 million compared to the Planned amount of
sales, and how the $2 million compared to sales
by the individual's Peers.
Dr. Smart made tons of great additional points
that entrepreneurs can use immediately to start
building stronger teams and achieve more success.
In fact, we are in the process of hiring more
customer support staff for entreprenuers University,
and will be employing his techniques immediately.
To Your Success!
--
Venture Capital Intl., Thomas Duffy, CEO
Cell: 203.775.9999
Fax: 203.648.4942
5 steps
Without further hesitation, here are 5 signs your business plan will come up short with investors:
Sign #1: You’re Selling What?
You know what you sell. But has your business plan clearly and concisely described those products and services? Too many business plan writers make the incorrect assumption that the reader is as familiar with their business as they are. Unfortunately, this assumption leads to a quick and final “no” from lenders and investors.
Instead, define and describe your product for someone who knows nothing about your industry. Be sure to include not only the features of your offering, but also the benefits. Tell the reader what need it fills, why it’s better, faster, or cheaper or how it can improve their life.
Sign #2: “I Sell To Everyone!”
Do you? More than likely, you sell to a very specific group with the need and desire to purchase your product or service. Understanding your target market can be the difference between success and failure. It allows you to outline the benefits important to your clients, enables you to focus your marketing efforts to reach the right audience, and forces you to determine the most cost effective channel to get your product in the hands of paying customers.
Define your customer in as much detail as possible, including demographic traits as well as more subjective items such as lifestyle and personality types.
Sign #3: Your Competitors Know You Exist
A business plan lacking a comprehensive competitive analysis is destined for the trash can of most investors. In order to avoid this fate your business plan should include a thorough analysis of your competition. Experienced capital sources know that competition exists, but they also know that competitive forces can have a very positive effect on a company’s attitude and performance. Remember, Coke has Pepsi, Microsoft has Apple, etc. Be sure your business plan identifies who your competitors are, what they sell, what market share they hold and their strengths and weaknesses.
Sign #4: Even Batman Had Robin
No one ever said running a company was easy, and with the lack of hours in a day (only 24 hours as far as we can tell), a well rounded TEAM of people is often critical to the success of a company. Most capital sources view one-person operations as limited in terms of time, experience and core business skills necessary to launch and grow a serious business. They also expect a team of professionals that are highly competent in each business function (marketing, sales, operations, finance, manufacturing, engineering, etc.). Once you have assembled your team, be sure to provide your business plan reader a thorough description of the background and job responsibility for each, along with a discussion of your board of directors, board of advisors and key consultants.
Sign #5: An Exit Strategy – Without An Exit, Or A Strategy
A business plan is an excellent tool to plan a business or to raise capital. However, when seeking capital don’t forget that an investor’s commitment hinges upon their ability to recoup their initial investment and a healthy profit. The lack of a solid and realistic exit strategy demonstrating how investors will accomplish this goal can immediately turn off many sources of capital.
When deciding upon an exit strategy, be sure to take into account your particular industry, business life-cycle, competitive environment, and management needs. It’s also important to consider your personal and financial goals, and how they relate to the future of your business – without forgetting that an exit strategy must meet the needs of the person who will ultimately write you a check.
Good Luck and Happy Business Planning! For more information on preparing a top notch, investor ready business plan call me
html://www.tduffyllc.com
Venture Capital Intl., Thomas Duffy, CEO
Cell: 203.775.9999
Fax: 203.648.4942
Thursday, June 18, 2009
speaking
Over the past decade, I have written countless articles on how to raise capital. I have taught thousands of entrepreneurs how to create a great business plan, how to develop a strong financial model, and ways to devise a slide presentation that gets investors excited.
And then, I have written extensively about how to grow your company once you have raised capital. Discussing how to motivate your employees to maximize their effectiveness. And how to find partners that can take your business to the next level.
But there's one thing I haven't written about. One thing that I've totally neglected. And this one thing can increase your effectiveness at ALL of these activities - from raising capital to performing all the tasks needed to grow your successful business.
For this I apologize.
So what is this one thing?
The answer is public speaking, and your ability to communicate ideas to investors, partners, employees and others.
I realized that public speaking was the missing key when I recently reviewed a unique book called "The Power Presenter" by Jerry Weissman.
And, I might not have read the book if it had not received so much praise from venture capitalists. These VCs have relied on Weissman to prepare them to not only raise money for their own funds, but to teach their portfolio company CEOs so they could raise future funding and better grow their companies.
So, why are Weissman's teachings so important? Because, your ability to present effectively and be a great public speaker is critical to your ability to raise money for your business, attract and formalize relationships with key partners, and build a highly motivated team among other things.
And importantly, Weissman's research proves that the content of your presentations is less important than your body language (most important factor) and your voice (next most important factor).
Allow that to sink in for a minute.
What this means is that when you meet with a venture capitalist, angel investor or bank loan officer, your presentation skills are more important than the content of your presentation!
This fact is a bit bothersome to me.
Why? Because it means that an entrepreneur who has great public speaking skills but a poor investor presentation and business model has a superior chance of raising capital than an entrepreneur with a great investor presentation and business but poor communications skills.
But, rather than me pouting about this seemingly unfair reality, let me tell you some of Weissman's keys to making you a better public speaker and presenter.
First of all, to reiterate, the most important thing influencing your audience is visual (i.e., your body language), then vocal (your voice and speaking rhythm) and then verbal (the story you tell).
Secondly, when you present in front of a group, your natural "fight or flight" instincts kick in. Your adrenaline starts pumping and you often get anxious and fidgety. The way that you act as a result of this poorly impacts your audience's perception of you.
To decrease your anxiety, use the following techniques:
1. Practice, practice and practice some more. The more you practice your presentation, the more comfortable you will be when you give it.
2. Concentrate. Just like an elite athlete, you need to clear your mind before the presentation so you can fully concentrate on the task at hand.
Important side note: many years ago, I had the pleasure of introducing entrepreneur and author Harvey McKay at an event. Before he went on, I saw him with his head against the wall talking to himself. I thought it was absolutely bizarre. But he used that technique to focus his mind and pump himself up. The result - he had the audience in the palm of his hand the whole time. It was truly amazing.
3. Shift Your Focus from You to Them. If you give a presentation and your best friend happens to be in the room, chances are that after the presentation the first question you will ask your friend is "How did I do?"
It is this mentality of thinking about yourself that makes people nervous. Rather, focus on the audience. Look at them and think "how are they doing?" This will allow you to present more effectively.
4. Focus on specific people in the audience. Whether there are three prospective investors or business partners in the room, or you are speaking to a room of 50 or 500, you need to visually focus on one person at a time. That is, pick one person to start and complete your first main point. Then you should shift to different people for each key point you make during the presentation. This helps you concentrate better and make sure you are focusing on the audience rather than on yourself.
5. Practice your hand gestures. Hand gestures often positively engage an audience. But, making hand gestures in front of an audience often feels awkward and uncomfortable. You must practice using them with "warmer" audiences (e.g., your friends, co-workers and/or employees) until they become second nature.
Like it or not, your public speaking ability and presentation skills are more important than the content of your presentations. As such, successful entrepreneurs need to master these skills. Use these tips to improve your skills, and remember to really practice all your presentations before the actual event. As you know, in most cases, you only get one shot at key presentations.
To Your Success.
And then, I have written extensively about how to grow your company once you have raised capital. Discussing how to motivate your employees to maximize their effectiveness. And how to find partners that can take your business to the next level.
But there's one thing I haven't written about. One thing that I've totally neglected. And this one thing can increase your effectiveness at ALL of these activities - from raising capital to performing all the tasks needed to grow your successful business.
For this I apologize.
So what is this one thing?
The answer is public speaking, and your ability to communicate ideas to investors, partners, employees and others.
I realized that public speaking was the missing key when I recently reviewed a unique book called "The Power Presenter" by Jerry Weissman.
And, I might not have read the book if it had not received so much praise from venture capitalists. These VCs have relied on Weissman to prepare them to not only raise money for their own funds, but to teach their portfolio company CEOs so they could raise future funding and better grow their companies.
So, why are Weissman's teachings so important? Because, your ability to present effectively and be a great public speaker is critical to your ability to raise money for your business, attract and formalize relationships with key partners, and build a highly motivated team among other things.
And importantly, Weissman's research proves that the content of your presentations is less important than your body language (most important factor) and your voice (next most important factor).
Allow that to sink in for a minute.
What this means is that when you meet with a venture capitalist, angel investor or bank loan officer, your presentation skills are more important than the content of your presentation!
This fact is a bit bothersome to me.
Why? Because it means that an entrepreneur who has great public speaking skills but a poor investor presentation and business model has a superior chance of raising capital than an entrepreneur with a great investor presentation and business but poor communications skills.
But, rather than me pouting about this seemingly unfair reality, let me tell you some of Weissman's keys to making you a better public speaker and presenter.
First of all, to reiterate, the most important thing influencing your audience is visual (i.e., your body language), then vocal (your voice and speaking rhythm) and then verbal (the story you tell).
Secondly, when you present in front of a group, your natural "fight or flight" instincts kick in. Your adrenaline starts pumping and you often get anxious and fidgety. The way that you act as a result of this poorly impacts your audience's perception of you.
To decrease your anxiety, use the following techniques:
1. Practice, practice and practice some more. The more you practice your presentation, the more comfortable you will be when you give it.
2. Concentrate. Just like an elite athlete, you need to clear your mind before the presentation so you can fully concentrate on the task at hand.
Important side note: many years ago, I had the pleasure of introducing entrepreneur and author Harvey McKay at an event. Before he went on, I saw him with his head against the wall talking to himself. I thought it was absolutely bizarre. But he used that technique to focus his mind and pump himself up. The result - he had the audience in the palm of his hand the whole time. It was truly amazing.
3. Shift Your Focus from You to Them. If you give a presentation and your best friend happens to be in the room, chances are that after the presentation the first question you will ask your friend is "How did I do?"
It is this mentality of thinking about yourself that makes people nervous. Rather, focus on the audience. Look at them and think "how are they doing?" This will allow you to present more effectively.
4. Focus on specific people in the audience. Whether there are three prospective investors or business partners in the room, or you are speaking to a room of 50 or 500, you need to visually focus on one person at a time. That is, pick one person to start and complete your first main point. Then you should shift to different people for each key point you make during the presentation. This helps you concentrate better and make sure you are focusing on the audience rather than on yourself.
5. Practice your hand gestures. Hand gestures often positively engage an audience. But, making hand gestures in front of an audience often feels awkward and uncomfortable. You must practice using them with "warmer" audiences (e.g., your friends, co-workers and/or employees) until they become second nature.
Like it or not, your public speaking ability and presentation skills are more important than the content of your presentations. As such, successful entrepreneurs need to master these skills. Use these tips to improve your skills, and remember to really practice all your presentations before the actual event. As you know, in most cases, you only get one shot at key presentations.
To Your Success.
Wednesday, June 17, 2009
invitation
i would like to set up an appointment to get to know more about your group
and how we can work together to help our clients.
We thus take pride in and
are recognized for
developing creative solutions, providing unparalleled
service and funding capabilities in getting the difficult deals done.
Our focus is on
originating, structuring,
advising and acting as equity investor in management-led buyouts, strategic
minority equity investments, equity private placements, consolidations and
buildups, and
growth
capital financings.
As you may know my core business
is helping companies find money for working capital or expansion if you know
any businesses that need help we can also help them find
more cash flow and
eliminate expenses
without firing any employees!
Since
we share common interests in innovation, and the value of networking I
thought I would send you this intro and ask if you would like to connect
for future opportunities to collaborate, learn and share knowledge.
My request is based on personal interest, and a pay it forward philosophy. I
believe
that we can all learn
through and perhaps help one another in some
way through new connections.
Best regards,
thomas duffy
vci llc
president
o 860-350-4440
f
203-648-4942
and how we can work together to help our clients.
We thus take pride in and
are recognized for
developing creative solutions, providing unparalleled
service and funding capabilities in getting the difficult deals done.
Our focus is on
originating, structuring,
advising and acting as equity investor in management-led buyouts, strategic
minority equity investments, equity private placements, consolidations and
buildups, and
growth
capital financings.
As you may know my core business
is helping companies find money for working capital or expansion if you know
any businesses that need help we can also help them find
more cash flow and
eliminate expenses
without firing any employees!
Since
we share common interests in innovation, and the value of networking I
thought I would send you this intro and ask if you would like to connect
for future opportunities to collaborate, learn and share knowledge.
My request is based on personal interest, and a pay it forward philosophy. I
believe
that we can all learn
through and perhaps help one another in some
way through new connections.
Best regards,
thomas duffy
vci llc
president
o 860-350-4440
f
203-648-4942
Monday, June 15, 2009
referrals
I appreciate the conversational exchange this opens around referrals. Having built 7 businesses in 7 industries has given me perspective I don't know I could have gained out of following any one set of approaches. Here are the most, most valuable three tips I diligently practice now.
(and of course, you can't just practice these -- having an actual system you honor and the mindset of inclusiveness and appreciation can also never be replaced!)
1. BECOME the type of referral you SEEK. I am constantly intrigued by those who complain or lament regarding referrals they do not get - who have rarely, rarely even made ONE -- or at most a very few -- lifetime. Gandi cracked this code long ago: BECOME what it is you seek. Reciprocity RULES. It even supersedes all the lofty and often quite expensive of sales-training.
2. STOP practicing "sales" jargon. Who wants to ever be "closed???" How on earth has this lingo prevailed? If you are truly about relationship (which is the root from where sustainable referrals thrive, reside and die) are you not about:
is it not OPENING you really seek??? (vs closing) (duh!)
Just speaking with the whole lingo of "prospect," "closing" etc is very, very revealing about what's really primary and on your mind. Take a hint...people are not stupid and they don't appreciate being prospected. A lifetime, compounding value of the client relationship is what you really want. Why not set it up for that to most often become possible?
Another way you can self-check - once there is no possibility of "a sale" -- what happens in your commitment to staying in touch with those you've also formed real (or you think they are real, right?) relationships? If they go off your radar completely - you may also know why that person is no longer in your sales-zone of possibility.
Here comes Social Media -- word travels fast in this new, more transparent world of easy-pattern-detection.
(in fact, this week I've actually blocked 3 globally known and highly regarded FRIENDS who have constantly used Facebook for literally nothing but pitching "free" stuff with sales sandwiches tucked within the edges of all the bait. One was actually discontinued from Facebook in April, learned nothing, and now back here in May is doing the same thing - just at decreased frequency. That's when i blocked her friendship link also - who needs that kind of friend online? That does not mean i don't still like her - i just don't need to deal with deleting the clutter she's proliferating the space with any longer.
(if you need to know how to block pitch-folk - there is a little window within which to add their name at the bottom-right-hand corner of the Privacy section. Facebook obviously isn't making this easy to locate..being now in the sales and pitching biz themselves.
Whew! end of rant...i love business development -- and i really am aware when folk even unconsciously but consistently forget the relationship element i do believe being we're all ultimately connected - it reflects poorly on the whole arena of business cultivation and maintenance.
3. So...on a more positive note: Almost everyone i've ever know who does not get referrals - who truly IS capable, talented AND appreciative - has simply failed to understand how/who referral NATURALLY works well FOR and with...and it's pretty obvious.
Referrals work best for:
1. that 5% you cannot KEEP from delighting in telling you about everything great they just discovered -- trip destinations, where to shop for xxx, books to read, people to meet, organizations to consider joining, the greatest new movie, the concert by xxx. THOSE are the people who are inherently WIRED to share...and they truly love doing it and do not consider it a cost - but an opportunity.
Now...regretfully, statistically because you have to realize they are also putting their OWN credibility and reputation as being an informed referrer on the line each time - -a small, small percentage love to take that risk. So...we would maybe be wise to let up out of the theoretical headlock of blame ALL those others who are simply not pre-disposed to refer.
There is ONE exception -- probably another 5-10% who genuinely appreciate you and what you provide WOULD be periodic (vs automatic or extremely thoughtful) referrers -- IF, and only IF -- you educate them specifically in how to best do that, make it incredibly EASY for them to do so (give them links, materials, cards - whatever) so they can do it gracefully, tastefully, willingly -- when it is convenient to THEM.
Yesterday, I finally personally MET a woman I've cross paths with at least 10 times in the past year here in Austin. I had NO idea she was actually a PR specialist who GOES to major events with her clients. We struck up a natural conversation easily -- about someone i did not KNOW was her client there at that event - who i really, really admire and who i will also soon be working with myself. She did not know that. I did not know anything else about her -- and yet I recognized immediately due to HOW she implements her business, how well she cares for her clients so personally -- she and i will do business together.
I left the event with 3 more of her cards -- 2 go to former clients of my own - 1 to a collaborator. It will be a sheer pleasure to make these referrals as i know we ALL will win -- and she is a mutually giving referral also, both to me and will be to each of them if she has confidence in their deliverables.
(and of course, you can't just practice these -- having an actual system you honor and the mindset of inclusiveness and appreciation can also never be replaced!)
1. BECOME the type of referral you SEEK. I am constantly intrigued by those who complain or lament regarding referrals they do not get - who have rarely, rarely even made ONE -- or at most a very few -- lifetime. Gandi cracked this code long ago: BECOME what it is you seek. Reciprocity RULES. It even supersedes all the lofty and often quite expensive of sales-training.
2. STOP practicing "sales" jargon. Who wants to ever be "closed???" How on earth has this lingo prevailed? If you are truly about relationship (which is the root from where sustainable referrals thrive, reside and die) are you not about:
is it not OPENING you really seek??? (vs closing) (duh!)
Just speaking with the whole lingo of "prospect," "closing" etc is very, very revealing about what's really primary and on your mind. Take a hint...people are not stupid and they don't appreciate being prospected. A lifetime, compounding value of the client relationship is what you really want. Why not set it up for that to most often become possible?
Another way you can self-check - once there is no possibility of "a sale" -- what happens in your commitment to staying in touch with those you've also formed real (or you think they are real, right?) relationships? If they go off your radar completely - you may also know why that person is no longer in your sales-zone of possibility.
Here comes Social Media -- word travels fast in this new, more transparent world of easy-pattern-detection.
(in fact, this week I've actually blocked 3 globally known and highly regarded FRIENDS who have constantly used Facebook for literally nothing but pitching "free" stuff with sales sandwiches tucked within the edges of all the bait. One was actually discontinued from Facebook in April, learned nothing, and now back here in May is doing the same thing - just at decreased frequency. That's when i blocked her friendship link also - who needs that kind of friend online? That does not mean i don't still like her - i just don't need to deal with deleting the clutter she's proliferating the space with any longer.
(if you need to know how to block pitch-folk - there is a little window within which to add their name at the bottom-right-hand corner of the Privacy section. Facebook obviously isn't making this easy to locate..being now in the sales and pitching biz themselves.
Whew! end of rant...i love business development -- and i really am aware when folk even unconsciously but consistently forget the relationship element i do believe being we're all ultimately connected - it reflects poorly on the whole arena of business cultivation and maintenance.
3. So...on a more positive note: Almost everyone i've ever know who does not get referrals - who truly IS capable, talented AND appreciative - has simply failed to understand how/who referral NATURALLY works well FOR and with...and it's pretty obvious.
Referrals work best for:
1. that 5% you cannot KEEP from delighting in telling you about everything great they just discovered -- trip destinations, where to shop for xxx, books to read, people to meet, organizations to consider joining, the greatest new movie, the concert by xxx. THOSE are the people who are inherently WIRED to share...and they truly love doing it and do not consider it a cost - but an opportunity.
Now...regretfully, statistically because you have to realize they are also putting their OWN credibility and reputation as being an informed referrer on the line each time - -a small, small percentage love to take that risk. So...we would maybe be wise to let up out of the theoretical headlock of blame ALL those others who are simply not pre-disposed to refer.
There is ONE exception -- probably another 5-10% who genuinely appreciate you and what you provide WOULD be periodic (vs automatic or extremely thoughtful) referrers -- IF, and only IF -- you educate them specifically in how to best do that, make it incredibly EASY for them to do so (give them links, materials, cards - whatever) so they can do it gracefully, tastefully, willingly -- when it is convenient to THEM.
Yesterday, I finally personally MET a woman I've cross paths with at least 10 times in the past year here in Austin. I had NO idea she was actually a PR specialist who GOES to major events with her clients. We struck up a natural conversation easily -- about someone i did not KNOW was her client there at that event - who i really, really admire and who i will also soon be working with myself. She did not know that. I did not know anything else about her -- and yet I recognized immediately due to HOW she implements her business, how well she cares for her clients so personally -- she and i will do business together.
I left the event with 3 more of her cards -- 2 go to former clients of my own - 1 to a collaborator. It will be a sheer pleasure to make these referrals as i know we ALL will win -- and she is a mutually giving referral also, both to me and will be to each of them if she has confidence in their deliverables.
Saturday, January 10, 2009
networking
Since we share common interests in innovation, and the value of networking I thought I would send you this intro and ask if you would like to connect for future opportunities to collaborate, learn and share knowledge.
My request is based on personal interest, and a pay it forward philosophy. I believe that we can all learn through and perhaps help one another in some way through new connections.
Best regards,
thomas duffy
vci llc
president
o 860-350-4440
f 203-648-4942
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