Tuesday, September 20, 2011

Strange Internal Interview Today

I had a talk with a functional sales manager today that has been with me for about 5 years.  When he started with the company he had to go through training, then periodic retraining as our focus shifted when we found new opportunities.  As a part of his position he has to follow a checklist for daily activitiy and although he was supposed to do this checklist, he wasn't and through poor management that fell through the cracks.  I saw this as a learning opportunity for me, so I can strenghten my leadership within the company.

I tried something new that I had never done before, I decided ahead of time I'm going ask every single question that comes to mind no matter how "dumb" it sounds and for how ever long the whole process takes.  I asked questions about the strategic vision of the company, his part in the over all picture of the company, why were in existance, what his company description to customers was and how his position fits into the overall company.  The talk was completed in two hours.  Here are the results:

1)  He completely got the strategic goal of the company wrong.  Not by a little, he was appearantly working for another company that he created inside of his head but he was on my payroll

2)  He completely misunderstood his job function, he was so far off the mark that 50% of the activity he was performing didn't even make sense to the ficticious company he made up nor the company that he is actually employed at.

3)  He didn't know why we were in business, he had a vague idea but he was really off the mark.

4)  His comany description was very much in tune with what we were doing when he was hired but 5 years is a long time in business and his ideas weren't updated with the company.

5)  He didn't have an answer on how his position fit into the company other than that he is in charge of sales.

What did I learn?  Between me and my other owners, we need to communicate strategic vision with our employees better, more often and on a one on one basis.  I think the only way we can get this across is by asking questions first trying to figure out what our managers think we are doing then readjust that into what we are currently doing.  The good news is that after I fix this guy's opinions I'm expecting a 20-30% jump in sales within 60 days, which is huge. 

Friday, September 16, 2011

Education in Business, Privave Equity and Venture Capital

I have a few very very smart people working for me and they started fresh out of college.  These smart people  achieved MBAs from top schools or they got degrees in mathematics studying things I can't pronounce let alone understand.  I've found these educated people have something in common, they are virtually worthless to me in business.  It's taken me 9 years to figure out why this is and why they get trapped in their jobs even though I provide guidance and training.  I've also sorted out a program for them to be successful, whether or not they follow it is up to them.

Since these smart people were children, their parents drilled into them the importance of schooling.  Their parents convinced them since practically birth that they were competing on a local scale against global academic opponents and the children needed to be the best.  The parents devised at a young age several plans for the children, the children were going to go to good schools, they were going to join a sport to learn how to work with a coach and other kids (maybe a scholarship for athleticism if we are lucky!), they were going to join an academic club like debate, they will know their teachers and they will study.  Since competition for spots in a good school is fierce, maybe they will need to pick up a specialized hobby like Falconeering or feign interest in green energy to get something on that college application.  All of these activities are geared towards college admission.

Some parents would extend their commute to their own work by an hour or more each way to move into a good school district.  I've seen instances where a parent will rent an apartment in a good district just so they had an address within the right zip code for the best high schools.

Then the kids started to study.  They studied a lot.  Morning noon and night.  If they said they didn't they are flat out liars.  They spent a chunk of their weekends studying for tests and nights were filled with college application related activities and more studying.  The plan worked, they got into the school they wanted to and went on to do a lot of the same studying (dropping the sports and hobbies once in college, of course, don't need them now).

So they graduate and I get them.  They come here, all degreed up, still talk about the Falconeering they did 10 years ago so they look somewhat interesting and I look em up and down and see their good grades and say, what the hell, let's give this kid a shot.  He comes in here, gets some training and completely bombs as an employee.  Why?

They completely abandon all of the concepts that made them successful.  The new employees are going to have to come up to speed quickly and training and mentor ship is only going to get you so far. In order for them to succeed, they need to do the following:

1)  Read a book on the subject they are working on (marketing, PR, sales, accounting, whatever).  Don't rely on my training or schooling they had 5 years ago.  Find a good book by looking on online forums for recommendations for books then copy pasting the title into Amazon.  From there, look at the reader reviews on Amazon to see if it's a good book or not.  Then look at the other books that Amazon recommends and see what those books are and if they are reviewed by the readers even better.  Settle on a book and read it.  Take notes on important things in the book in another notebook.

2)  Find a small study group of like minded people that are interested in talking about the book you are reading.  Hopefully it's someone you work with or your boss.  In absence of that, set up an online forum on websites like http://www.reddit.com or something within your specialty.  Discuss the book and post your questions.

3)  Network on the subject you are talking about with people you don't know.  How?  Do a search of occupation that you want to learn more about on Linked in and ask someone out to lunch.  I've learned about EVERYTHING this way and I've only been turned down 1 or 2 times.  If this is too much for you, do your best to get over it.

4)  Review your notes and the forums to make sure you understand your topic

5)  Start testing and applying the principles in the book

6)  Remember learning and your life doesn't always happen at once, it happens over time so you only START learning once, but you will never stop once you start.  There is no end.  Get more books, go to more lectures, talk to more people.

Recap or TL;DR - New Hires - the only thing that made you successful in school is you - read the book, went to the lecture, took notes and then studied.  Do that in your new job or you will completely suck.

Sunday, November 21, 2010

Buffett and Raising Taxes

Buffett has been saying for the last 2 years that the government should raise taxes on high net worth individuals and lower taxes on the lower, middle and upper middle class.  While I'm not in the game of guessing what anyone else is doing and why and I haven't been paying much attention to Buffett (even though I own a few shares of Berkshire) I finally figured that Buffett is angling to get more money to his customers.  The rich don't buy Fruit of the Loom, Dilly Bars and import goods that travel on railroads, the lower, middle and upper middle class are the aggregate spenders.

So if Buffet can take 5% out of the upper 2%'s pie and redistribute it to the other 300,000,000 this country would really sell a ton of consumer goods.  In the end probably everyone connected to any consumer goods would benefit (I have a sizable position in a furniture import company so I'd like to test the theory).  This might even help some companies that need some Chicago private equity.

Monday, November 15, 2010

How can you get your business funded?

There are only a few people that really believe in you in this world (most of the time), you parents, your wife, your kids and your friends.  Once you start getting away from that close group you start working with people that don't know you that well and don't trust you or your word.  Once you convince some people that don't know you that well, the next people you will work with are people that you probably won't ever meet.

Think of all of this as a funding cycle for your business.  When you come up with your first idea the only people that are going to believe in you are your friends and family and that's why they call your typical first round a friends and family round.  Your second round is when your numbers start talking and VCs are willing to look at you.  The VCs care a bit about you but mostly about the numbers of the business.  The next round of funding usually takes place when the VCs call each other and start soliciting your deal around and then they start networking for you (or at least helping you).

Putting this in even other terms, your first round is usually a boot strap for a prototype, then once you have proven a prototype then you can move on to a revenue generating model and finally an expansion cycle.

I'm mentioning this because when you come to an outside party for your first round or before you need additional capital to expand, you are probably better off going to your friends and family before hitting up a bunch of groups you aren't ready for.

When you are looking for Chicago Private Equity or an angel investor in Chicago I'll be ready for you.

Thursday, October 7, 2010

Chicago Angel Investing Panel - Observations.

About a month ago I was at a private equity event at Perkins Coie given by some group to showcase about 10 companies that needed angel money or venture capital.    There weren't any concepts that I was interested in as I do try and stick to simple businesses where I can see where the money is going to be made.  Maybe I'm a part of a rare breed that thinks that there should be some kind of return associated with an investment, not dreams.  Remember, hope isn't an investment strategy.

I had a few obersavations about the hard money investors and a  few about the small business startups that I met in the audience.

1)  Ron May is an interesting guy.  I still don't know what he's all about, but at least he's interesting.
2)  There was a concept from the panel that said if you are looking for money, figure out if you need help or money.  If you need money, ask for money, if you need help ask for help.  An example is if you are asking for a commercial investment and you don't really need financing but you really need help with sales and marketing, ask for help with sales and marketing.  If you ask for business capital you are going to get it but then you won't get any help with your other problems.  No matter what you ask for, you are going to get it, a lot of it, so be careful and honest with yourself.
3)  An old concept of mine, fail fast if you are an entrepreneur.  Fail today, not tomorrow or next week.  It's better to start a new idea than to hang on and torture yourself with an idea that's not generating cash and has no hope.  How can you tell if you are generating cash?  If you can pay all of your bills at home, your payroll and other expenses.  If you are deeper than 3 months into your business and none of this is happening, well you might want to start reconsidering picking back up your day job.
4)  Starting a business isn't for everyone, sometimes people want to invest in ideas that are already mature vs. start ups.  Some people would rather purchase a new gas station over funding a new energy drink idea.  And that's OK.

Thursday, July 15, 2010

Hobby Businesses vs. Actual Businesses

I've reviewed a few Chicago venture capital businesses on the over the last few months and typically I'm seeing businesses break down into a few categories

1)  Ones that are making good money that are selling at a multiple of that (whether the multiple is fair or not is a different story)
2)  Ones that are not making money selling on the "castles in the sky" theory of investing (someone will come along and pay more for this idea)
3)  Ones that are making a little money but not enough to support anyone.

The worst business to be involved in is the third one, in my opinion.  Here's where I see entrepreneurs spend all of their time, excess money and effort and ability for pretty much nothing in return.  There's an entrepreneurial dream and then there's financial suicide. If someone is involved in the third type of business, at least you can say "I ran out of money, I'm done, I'm going to do something else."  With the second kind of business you are trapped forever in limbo.  Let's take a look at one example of the third type of business I recently came across.

The entrepreneur owns a software company that is producing about $40,000 net profit per year.  He's tried everything to push it further. New interfaces, new marketing techniques, new partners (major ones) new sales people.  Nothing seems to make the software produce more money.  Raising or lowering the price, spending more on marketing, nothing happens.  This happens for years.  In the mean time, this guy is running a programming consultancy on the side that nets around $150,000 per year IF he's working full time.  Due to the software business distraction he doesn't work full time because he can't give 100% to his employers. 

On a personal level, this guy works a little bit on his consultancy business so he only nets around 80k per year plus the 40k from the software.  The consultancy takes up 9 hours of his time with commute and the software takes another 6 hours plus most of the weekends.  So he's actually taking a practical pay cut and he's taking time away from his family and himself by working on a concept that isn't panning out.


So what was my recommendation?  Let the software business float, collect what money you can at the end of the month from it and concentrate on the business that pays more, the software consulting.  Then at night and on the weekends, play with your kids and lead a happy life without the distraction. 

The tragedy here is that he didn't set a cut off date for success or failure on the project so he subjected himself to a business limbo that requires him to work too hard without any financial return that's commensurate with the effort. That's why this type of business is the worst type of business to be involved in.

Tuesday, June 15, 2010

Looking for places to invest

One of the larger difficulties in doing angel funding in Chicago or doing a Chicago private equity deal is drumming up deal flow.  Deal flow is all about having enough business opportunities in front of you to be able to make a good choice.  Here are a few ways people dig up deals:
  • Work out departments at banks, when a business gets in trouble with their loans, the banks either can take possession of the company or introduce the current owners to fresh investors
  • Going to the business brokers.  This option is good if the investor doesn't want to do a lot of convincing the seller to sell.  At least at the business broker's office, there is a price and a pretty good representation of financials of the company.  The sellers are usually ready to depart from the company if they have gotten this far
  • Through angel networks where there is a single fund raising and deal committee, you dump your money in, they charge a fee and do all of the due diligence
  • Word of mouth through business groups like YPO, EO or standard Chamber of Commerce connections
Just like with any other job, you have to get up early, work late and nothing is ever handed to you.