The Stress Test You Don’t Read About
Bill Warner Saturday, May 09, 2009
Well, great news. The banks have passed the stress test; although some have to raise some more money, no problem. We have bottomed out, and back on the mend. Right? That’s what most of the media and the administration are telling us. So, it must be true.
There’s another stress test in town
Not so fast. Take a look at this report in The Nation about another stress test done by The Institutional Risk Analytics Bank Monitor (IRA). This is the group that provides an independent assessment of the banking system to organizations like the FDIC. Their report is the exact opposite of the administrations stress test. IRA claims that there is a dramatic increase in the stress in the US Banking system, mainly driving by the loss of stability due to negative net incomes of over 1,500 banks. IRA’s Bank Stress Index jumped three fold since the end of 2008.
It’s not all about Wall Street
The administrations stress test might have some good news about the large Wall Street banks, but is sure missed what is going on in the rest of the banking system. What they are missing is the slow but sure deterioration over the last nine months of the nations other banks. This has been driven by business failures and loan losses that continue to mount. These banks cannot just live on interest alone and cannot make up for these losses with new service charges. The result now is that an increasing number of US banks are on the brink of failure. This may be why it is still so hard to get a loan. Do you think?
Keep tightening the belt
The best advice I can think of is to keep tightening the belt and run your businesses with extraordinary discipline. A large portion of the banking system is not going to be able to help much for quite awhile. Search for the banks that are truly financially healthy, both in profit and balance sheet strength.
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GM Restructuring Its Way Out Of The US
Bill Warner Friday, May 08, 2009
What a kick in the head. As part of its restructuring plan, GM plans to dramatically move manufacturing offshore, taking advantage of cheaper foreign labor. In addition, an increasing number of its cars will be sold in foreign countries. The taxpayers, through the Obama bailouts, have paid billions to save GM. At the same time, Obama has pounded GM management for a new plan, as the unions compromised nothing. Well, they now are about to have the plan from hell that will eliminate more US jobs, putting thousands of auto workers on the street.
The unions are destroying GM
What the heck did Obama and the unions expect. GM has a failed business model, mainly due to expensive management negotiated union contracts and an unaffordable debt structure, that cannot be fixed under its current labor cost assumptions. Now Obama is between a rock and a hard place. He has to decide if he will put further restrictions on GM to keep the US jobs, which will spell the demise of GM, or suffer the wrath of the liberals who elected him by losing jobs to foreign countries. This is yet another lesson why government should stay out of private sector businesses.
The bailout was a bad investment
Our taxpayer dollars have been spent foolishly, as Obama tries to save a company that is tied in knots with union contracts and work rules. Any investor looking at this deal would walk in a second. The business model is just not workable and needs a total bottoms up restructuring. GM is predictably trying to do that by getting out from under the oppressive unions by moving manufacturing operations overseas.
Let the free market system work
None of this had to happen. We should let GM declare bankruptcy and undergo a court ordered restructuring. The free market system would have fixed this situation quite nicely, and we would have had a great chance of saving a lot of auto worker jobs in the process. GM would have been saved. Now we face losing it all.
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The Role of the Company Founder
Bill Warner Thursday, May 07, 2009
With the economic downturn and unemployment rising, many more people than ever are thinking about starting a company. As a company founder, you should know what you are getting into. The business and personal behavior of a company’s founder will, at any time in the history of the company, determine whether the company will succeed or fail. Venture firms know that. Banks know that. Public grant associations know that. Attorney and accounting firms know that. Most well informed private investors know that. As a company matures, there are many transition points that require the founder to make key decisions:
- Selecting the founding team
- Picking advisors
- Funding the company
- Selecting the management team
- Deciding when to step aside or give up ownership
- Selling the company
Founder block
If the founder handles these decisions intelligently, the chances for success are much higher. If not, the company will experience a quick demise. I call this ailment “Founder Block.” Major roadblocks to success occur when:
- Founders pick incompatible founding team members who don’t share the vision and buy into the business proposition
- Inexperienced and irrelevant advisors are picked to assist with the business
- Founders display inappropriate business behavior that shakes investor confidence that the founder has the required maturity
- The founder does not relinquish control to the management team
- They don’t step aside when more qualified people are needed to run the company
- Founders balk when share ownership changes occur and when the company is going to be sold
At the start-up of the company
Let’s start at the very beginning of a company’s life. The founder has a vision and an idea for a company. The founder does the research and creates a business plan to flesh out the idea and determine if a viable business can be created. Depending on the type of business, the founder may need other people of different skills to join in the early formation of the company to complete the business plan and actually get the company started. This founding team has to be put together considering the following essential principles:
- Every founder has the passion for the vision and is willing to make incredible personal sacrifices to accomplish it
- Everyone has skin in the game, in both time and money
- They all agree on the business plan
- The founders create the culture of the company and have compatible business and personal values
- Everyone is an “A” player, and their skills are complementary and necessary to create the company
- They work well together
Business advisors
Every successful company has had solid business and technical advice from a small group of highly qualified and relevant advisors. A board of advisors can help a struggling founder avoid a lot of early pitfalls. Considerable thought is required to pick them, making sure the advisor team consists of:
- Relevant technical expertise within the company’s selected industries
- Business development experience and a broad array of contacts in the company’s market segment
- People with a broad range of experiences in business, finance and management
- People with complementary product or services experiences that can assist with determining alliance partners
The first business transition point
The founder’s first jolt of harsh reality occurs at the time the company is financed. Whether it is a personal obligation to a family member who provides funding, debt that has to be personally guaranteed to a commercial bank, a grant requiring research results, or the obligation to shareholders taking private equity, the founder owes somebody something from the beginning. Successful founders will handle this set of transactions by:
- Treating the financing partners with business respect
- Managing the money with appropriate professional judgment
- Keeping them informed of progress
- Visibly, and with thoughtful action, committing to the fulfillment of the obligation
Finding the right management team
If financing isn’t enough pressure, adding to that pressure is the selection of the management team. For the first time, the founders have to decide where they really belong in the company, based on their personal skills and abilities. The new members of the management team have to fill the gaps that the founders cannot fill. Quite often, the founders need an experienced CEO to run the company. Experienced executives need to be brought into to accomplish the first set of milestones whether they are product research, product development, marketing introduction, early sales or manufacturing operations. Therefore, management team selection is not a one-time event. It has to be done throughout the life of the company. This is a difficult task for founders, and should be facilitated by experienced business executives. The keys to making the right selections are:
- Accurately and honestly assessing the skills and abilities of the current team; thereby determining what additional executive skills that are needed
- Openly admitting where help is needed by leaving no problem without thorough consideration
- Crisply defining the roles and responsibilities for the new members of the team
- Rigorously and intelligently selecting the people to fill the positions
Business growth and maturity
As a business matures, many things can happen to cause a founder to change their involvement in the company. Typical examples of this are: realizing the founder is not contributing or is a disruptive force, the founder in not required for future success when the company’s business direction changes, additional funding dilutes the founder to a minority shareholder, personnel conflicts occur that require the founder to leave the business, or the company is put up for sale. These are difficult times for the founder and have to be dealt with from the point of view of what is best for the shareholders of the company. When personal issues creep into the discussions, these situations can become very debilitating and actually destroy the company in its tracks. To successfully pull through these issues:
- The founder has to put the needs of the business ahead of personal issues; it’s all about business
- As when the founder had great business advice when starting the company, listen to trusted business advisors through these issues as well
- Be a constructive participant in doing what has to be done, embracing the change and making the transition successful
- Continue to support the vision of the business and be role model for the entire team by leading the way for necessary change
Business exit
Dealing with the sale or merger of the company is equally as difficult, and the founder has to be deal with it in the same manner. The sale is a final departing point and represents the day the founder’s company reaches adulthood. Lots of questions arise about selling or not selling the business: the right price, who stays, who goes, and many more gut wrenching questions. Getting cold feet is the last thing you want to have happen on either side of the transaction. Before a founder even entertains a sale or merger they must:
- Know what they want in the transaction and what the “walk away” terms are
- Think through and accept the implications of the transaction once the deal is signed
- Negotiate in good faith and from a clearly communicated set of deal principles
- Again, lead the way to making the transition successful
Exhibit mature business behavior
All potential alliance partners of a company, whether they provide funding, development, marketing, sales or operations, will want to see the right business and personal behavior of the founder before they proceed. If a founder shows inappropriate behavior, the best of deals will be cut off very quickly. If the founder exhibits mature behavior, in the most difficult of business situations, the partnership will benefit and the company will be on a path to success.
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Achieving Independence From Foreign Oil
Bill Warner Wednesday, May 06, 2009
It seems like we have fallen back to sleep on the issue of independence from foreign oil producers. It now appears that we can drill on US soil, without going off shore.
We have plenty of oil
I just learned about a year old report by the US Geological Survey that points out that we have massive oil reserves in eastern Montana and western North and South Dakota. It’s called the Willston Basin, or more commonly the “Bakken.” With current drilling technology we have access to over 500 billion barrels. Because it is light, sweet crude, it would cost less than $20 per barrel; enough for the entire US for the next 40 years or more. So, US oil exploration is not dead after all.
What’s being done about it?
Did you know this? Do our elected officials know this? Does our administration know this? Sure they do, but they are not doing anything about it. When gas prices approached $5 per gallon, we all seemed very interested in “drilling now.” Now that gas prices are down to $2, our government leadership seems to have lost interest.
We need stimulus now
Well, know we are in a depression, with modest recovery being projected early next year, and unemployment continuing to rise. It seems to me that we need a “stimulus package” to go after our own oil. This would dramatically reposition the entire US economy through oil independence and trillions in taxable revenue. We should be aggressively extracting this oil as fast as we can. I can’t imagine a more important stimulus program. Far more important than bailing out the failed business model of the auto industry and irresponsible financial institutions, all of whom simply need a chapter 11 bankruptcy to clear their ills.
Continue to explore alternate energy sources
Sure, we should also be investing in promising alternate sources of energy, but none of them has the potential of giving us energy independence any time soon at a level that makes sense for our economy. These investments of our dollars should not replace those that could gain oil independence, and we should manage the transition to alternative source of energy as they become more efficient and effective.
Yell about this
Read up on this. Form your own views. Then contact your senators, legislators and the media to drive attention back on this issue. Oil independence is actually within our grasp. We need leaders that will take action. If the current crew doesn’t, we should replace them in 2010 with people who will.
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The Structured Business Plan Presentation
Bill Warner Wednesday, May 06, 2009
With so many entrepreneurs trying to get their businesses launched, I thought it would be a good idea to remind them of what it takes to successfully present their businesses.
Whether you are approaching venture investors or simply trying to convince someone of the attractiveness of your company, you need to have a well thought out story that presents your business in a compelling and exciting way. Nobody is going to invest in or join your company if you cannot effectively explain why they should be spending their time and money to participate in it. The key in communicating your business plan story is to explain enough that your audience wants to spend time with you to learn more of the details about your business. There is some fundamental content your presentation should have, starting with a clear description of the opportunity you are going after and ending with why an investor, potential partner or prospective employee should join you.
There are ten major areas you need to cover in order to effectively communicate the fundamentals of your business.
The Opportunity
Every good business is founded in a compelling need that is currently not being successfully filled. Describe this need and the way you will solve it (problem or opportunity). Some business people call this the “pain” that your buyer feels, that you will cure. This part of your story validates the demand for your solution.
The Solution
Briefly explain your product or service, focusing on how it satisfies the buyer’s need, describing it from the perspective of the buyer. Highlight the benefits and value that the solution brings the buyer. Don’t dwell on “feeds and speeds,” but express your solution in results oriented language that relates to the buyer’s need.
These first two fundamental areas will make or break the interest of your audience. At this point, you will have essentially revealed what business you are in. If your audience is on the edge of their chairs wanting to hear more, you have really grabbed their interest. If not, you will probably not get any traction.
The Market
Now that you have grabbed the audience’s interest, you can start talking about the business in a little more depth. Explain some of the important aspects of the market segment that you will target, including information which profiles the characteristics and market opportunity size.
Competition
Every business has competitors. Keep in mind that it may be the status quo that you are up against or an internal solution that has its own sponsors. Typically, there will be many well entrenched competitors who address the buyer’s need in various ways. You need to portray how you are going to win.
Summarize the key competitors by portraying their strengths and weaknesses, and explain what differentiation you have that will beat them.
Product or Service Description
Briefly describe the product or service your sales team will sell to the buyer. Describe its salient features and the benefits they bring to the buyer; highlighting those that differentiate you from your competitors and sprinkle with examples.
In concluding your description, summarize the barriers to entry. There is no need to give away the intellectual property farm, but you need to explain the results of your “secret sauce” and show not everybody can easily get into your business.
Marketing Plan
Take some time to concisely explain the value your product or service brings to the buyer. This is a prelude to your marketing plan, showing that you know how to clearly explain the benefits you bring to the buyer and can quantify its value. In effect, you are explaining “why the buyer will buy.”
The Marketing Plan is all about generating sales leads. Don’t get hung up in brand management issues, corporate communications and public relations. Get right to the point about how you are specifically going to find your buyers and deliver your marketing messages. Describe your revenue model. Most companies fail because they don’t have an effective way to reach the market and close sales.
Sales Plan
Explain your sales model and process; for example, direct, indirect, OEM. Describe your near term sales objectives and status, including product readiness. If possible, explain what pipeline of customer prospects, demonstrating that you are getting market traction. The more you can demonstrate this with key account situations and next customers to close, the stronger your story will be.
Management Team
It’s important to show that the company is in the hands of a great management team that can be trusted to take it forward. This may be the most important confidence builder in your presentation, based on their credibility and experience.
Financials
You need to provide a forecast of key financial results: revenue, gross profit, net profit, cash flow and position, and significant capital needs. Explain your current financial status and show when you will be profitable and cash flow positive. Highlight the timeline for major business milestones. Many people believe this to be crystal ball kind of stuff. However, the important thing you are demonstrating is that you have a clear view of the dynamics of how revenue and profit will be made.
Investor Summary
Structure your summary to your audience and what they need to hear. Most people will want to know that this business will succeed because it satisfies compelling needs within the market. If you are looking for financing, you will also need to include the appropriate information. And last, explain the potential benefits for the investor when you achieve your objectives.
Summary
By covering these ten fundamental areas, you will provide a complete and concise view of your business that most people will understand. By focusing on the most important aspects of your business, and clearly netting it out, you will maximize your chances of your audience being interested in taking the next step with you.
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Inflation Proof Your Business
Bill Warner Tuesday, April 21, 2009
I am certainly no economist or master of the US financial system, but when I see how much money is being poured into the economy by the Treasury, red flags of inflation flash in my face.
Take a look at the trends. What I think this data says is that by early 2008, the money supply had reached $4 trillion, by the 4th quarter of 2008, it had reached $5 trillion and it is being reported as over $8 trillion. Recent news reports add another trillion in March. By the beginning of 2008, the money supply had doubled since 2002. In one year, it has more than doubled again, with $4 trillion being added in the last few months. I don’t know about you, but that is frightening to me. Yes, we are in a recession, but I am worried that in short order the devalued dollar is going to leap into the forefront as an issue causing price increases and higher interest rates, the key elements of inflation. This recession might snap like a rubber band into a period of rapid inflation.
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Get Ready To Find Your Next Job
Bill Warner Monday, April 20, 2009
With the unemployment rate continuing to rise I am meeting more and more people who are looking for their next opportunity. Unfortunately, many are nowhere near ready to actually approach an employer. I see people who have not really thought through what they want to do next, assessed their strengths and determined where they would best fit, written an effective resume, and cannot answer the simplest of questions about the value they bring to the table. With so many people on the job market, only the best of the best are going to land any jobs that might be available.
Tips that might help
Here are some tips on what to do to be ready for your job search:
- Smell the coffee – First, take a breather after leaving your last job. You have worked hard; now it’s time to decompress. It’s time to gather your thoughts and get over any lingering frustration about losing your job. You need a clear mind to think about the future.
- Assess yourself – Do a full assessment of your strengths and weaknesses to determine what the basis is for your value proposition. Yes, you are marketing yourself in this process, so you need to determine what your value proposition is as you sell yourself to a potential employer. So, write down what your personal value proposition is.
- Determine fit – Determine what your best fit might be for your next opportunity. Are you a big organization kind of person? Do you work in start-ups? What roles will you be best suited for in whatever sized company and industry you will be pursuing? Answer these questions helps you narrow down what kind of opportunities you intend to chase.
- Establish family priorities – Talk to your family once you have figured out your value proposition and best fit alternatives. Get an understanding of the limits that your family has for your job search. Are they willing to move? Are they willing to get less money? Are they willing to see you travel a lot? Get their buy-in to the kind of job search you intend to undertake. Surprises are not a good thing. Hey Honey! We are moving to Boston!
- Prepare your resume – Write a results-oriented resume. Employers want to know what your objective is and what results you have achieved in previous jobs. I stress results; not just simple statements of what you worked on. You sold products. Well, how much? You created marketing programs. Well, how many leads did it generate? You increased revenue or profit. Well, by how much? Employers want to know what you got done, not so much what you did.
- Network – Get out of your house and voraciously meet people. Use your contacts to give you referrals to people you need to meet that might know about new job opportunities. Yes, this is networking with a purpose. Go to important networking events and meet companies. Make contacts with professional services firms that might know about job opportunities that are arising with their clients; like, attorneys, accountants, HR firms and business consultants. Make yourself known to search and staffing firms.
- Determine targets – Do enough research that you have a list of companies that you want to pursue. Use your contacts to possibly give you referrals to people inside the company. So, when asking a business associate for help, you are not taking a thoughtless approach of simply asking them what opportunities they see. Instead, you are telling them that you are chasing a specific opportunity and you want them to help with a referral. You get a lot more help that way, by showing that you have done your homework.
- Market your resume – Don’t send a resume into the blue sky. Instead, send resumes to targeted companies that you have researched, where you customize your cover letter and follow up with phone calls to inquire about openings.
- Use the Web – Do make a habit of following the major job boards on the Web. Use Linked-In to make yourself known to your network. Overall, use the power of the web to learn about opportunities and to market yourself.
- Practice your story – You need to clearly state your value proposition, what a best fit opportunity is for you, why you left your last job, what you are looking for next and your excitement about taking this next step in your career. These points have to roll off your tongue with enthusiasm, commitment and integrity.
Hunt with a purpose
The hunt for a new job is a major undertaking. Take it as seriously as you would take launching a new product or service in your last company. You need a well thought out marketing program that generates new opportunities that are right for you and then sell yourself into those opportunities using solid sales technique and know-how.
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Inflation Tsunami Wave Getting Higher
Bill Warner Thursday, March 19, 2009
I can hardly stand to watch the news. All congress seems to be working on is getting back $165M in bonuses to AIG executives that they previously agreed to. Oh, they didn’t read that either in the stuff they have been passing. What a sham. The media and Congress are getting us all worked up about the loose change that got stolen from you while they pick your pockets for your wallet and wealth.
All of this is a well orchestrated diversion from the real problems at hand, so none of us pay attention to the more important things that are happening. They are spending more money that has ever been spent by the US government, nationalizing banks, nationalizing healthcare, passing money onto foreign banks through AIG and most importantly are printing more money than has ever been created in the entire history of the Treasury. Another trillion has just gone to press, further devaluing the dollar in order to hopefully stimulate the economy. Americans are not getting the true picture and I am afraid that most people really do not know what is about to happen to them. I have no crystal ball, but prices of everything will rapidly increase, unemployment will continue to rise, interest rates will go to high double digit levels all spelling rampant inflation. Then, we will need another recession to correct it. Get ready for one heck of a roller coaster ride. One can only hope that the moderate democrats establish a voting block to calm all this wild spending and spend some time managing the actions that already have been taken to see if we get any positive results and establish a process for accountability.
As for business owners and entrepreneurs, this all still means that you have to be incredibly diligent in managing cash and focusing your valuable resources on only those things that will move your business through these tough times. Unfortunately, many more businesses will fail over the next couple of years, but it doesn’t mean we should not get more focused. Do not give up. Eventually, the majority of the public will again realize the need for freedom and a free market economy with little government involvement. Make your voices be load and clear to your government representatives as you manage your way through this economic storm.
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A More Positive View On Economic Recovery
Bill Warner Monday, March 16, 2009
Well, Ben Bernanke is speaking out. This is a very unusual thing for a Fed Chairman to do. Bernanke is being widely quoted and did a piece on 60 minutes as well, where he is carefully projecting that the economic turnaround could occur later this year.
Balanced view of the potential recovery
Bernanke is careful to say at the same time that it depends on “getting banks to lend more freely again and getting the financial markets to work more normally.” It would seem that it is very important to know that our tax dollars for these bailouts are really going towards the improvement of lending and not for international expansion, acquisition of other banks and funding executive bonuses. Bernanke is particularly irked by the recent announcements of $165M in bonuses to AIG executives. Bernanke does also explain that unemployment will probably go to a double digit percentage before this is over, but once the financial system is working, we should recover. He also confirms that the Fed is printing a lot of new money. It has risen by three trillion dollars since December 2008. Bernanke recognizes that he is playing with potential inflation, but also says that the plan is to reduce the money supply once the financial system is working again. He never said how that would be done, but it sure does seem to be a crucial action in order to avoid rampant inflation next year.
Keep this all in perspective
Keep in mind that most of our regional banks are doing just fine. The only things we seem to read about are the few very large banks that unfortunately represent a large chunk of our economy, and how bad off they are because they bought into the toxic securities created by the sub-prime lending disaster. As business owners, you are quite safe and quite frankly acting responsibly if you are working with local banks that did not get themselves into this kind of trouble. When approaching a bank for credit or a loan, simply ask them what their financial position is and make them explain in quantifiable terms that they are comfortably solvent and are in a positive lending position; that is, their balance sheet is not full of junk.
We are all getting tied up by what is going on nationally and the federal level. For business owners, it comes down to running your companies with sound judgment and keeping your eye on the ball of the basics that make any business successful. If business owners employee solid business practices in the execution of their business operations, they will survive this recession and come out of this even stronger.
