Hedging Your Answers
Bill Warner Tuesday, May 26, 2009
I just read another interesting observation about using words that end in “ish.” These ish-words provide a way for you to hedge your commitments and bound your answers when you don’t really know.
This habit can hurt you badly
Consistently hedging your answers will create an image of you that will undermine your credibility:
- You appear less than honest
- You give the impression that you don’t know what you should know
- Your answers and commitments are not going to be understood
What will happen
Your management or board of directors will not appreciate this habit at all. You will end up getting more questions from them to narrow your answers to something specific. This takes time and energy and will frustrate them greatly. This habit can become so irksome that you could lose your job over it. If you find yourself getting endless questions following your answers, you better take a look at yourself first as the cause of it.
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Saying No The Right Way
Bill Warner Tuesday, May 26, 2009
I just saw an interesting blog on Seth Goden’s Blog about saying no. This is all easier said then done, but should be practiced by all leaders and managers.
How to say no
You certainly need to play it straight with people and not sugar coat all your answers that might hurt someone or waffle so that people don’t really understand where you stand. The secret is to turn “no’s” into “what is possible” answers. Instead of just saying no to a request, respond with:
- The conditions under which you will satisfy the request. This often explains why “no for now” is really the answer and indicates the conditions under which the answer will be yes.
- The things that you need in order to be able to say yes. This puts the ball back in the court of the asker who needs to then think about the broader picture.
- An explanation of the assumptions that are the basis for your answer as to when you will satisfy a request. This helps everyone understand the conditions for the answer being yes.
Add value in your answer
The opportunity you have in saying no the right way is transforming your answer into a collaborative problem solving conversation. All said and done, say no with professional firmness, but with a broader perspective than the asker often has. That adds value to all your relationships.
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Super Angels May Replace Venture Capital
Bill Warner Friday, May 22, 2009
Here’s a slant on the angel investment world that you may not imagine. Those angel organizations that view this down economy as an opportunity to get some really good deals may be introducing a new model of angel investing that could replace the role venture capital firms play today. Read about this in Spenser Ante’s article in Business Week.
What’s new?
Here’s the idea and premise. Instead of raising huge amounts of money in venture funds, which many claim is a broken model because the IPO market is nearly dead, raise much smaller funds. Every wonder why you read so much about the health of IPO’s? VC’s need them to get the multiples they require to make their deals whole. The new premise is to raise smaller amounts of money and invest much smaller amounts in many start-ups looking for much smaller but more predictable exits.
The aggregate should be more positive exits but at much smaller values. The idea is that the overall returns will be greater than the very high risk opportunities that VC’s engage in today.
VC’s are too big
The issue may be that VC firms are just too big. They have to place so much money in any single deal that they are almost destined to fail because the exits will not be lucrative enough. It has nothing to do with the recession, but everything to do with a basically broken business model. Some VC’s are seeing the light and going back to their roots of investing in start-up companies with small amounts of money. The difference today is that many companies can be started with a whole lot less money than we were seeing in the late 90’s and early 2000’s.
Why this might work
Well, the proof of the pudding is not yet seen. An entirely new model of venture investing may be emerging; one where VC firms invest in a lot more deals at the start-up stage with a lot less money per deal. This is placing a lot more bets on much riskier opportunities. Stay tuned as this model emerges.
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Angel Investments Decline In Recession
Bill Warner Thursday, May 21, 2009
In its most recent Angel Group Confidence Report, the Angel Capital Association (ACA) reported that 2008 average angel group investments were down 9 percent from 2007. They did point out that many groups actually increased, seeking opportunities while valuations are depressed.
Why did investments decrease?
We are all familiar with the impact of the economic downturn. As institutions backed away from venture capital investments, angel investors also become much more cautious and selective. They too took a big hit in the markets. The reaction of angel groups has been to be much more selective about making investments in new companies. This has led to the decline in average angel investments. In addition, they circle the wagons and protect their portfolio companies. Knowing that their companies will need help as it became unlikely to be able to raise VC money, the angel groups have to carry more of the water.
What does it take to get their attention?
It’s not all gloom and doom. Entrepreneurs that have a great business idea should not shy away from approaching angel groups. They should really get familiar with what valuation and terms to expect in this market before they approach them.
Angels will be looking for well thought out business models that will get substantial sales traction quickly. The less money needed the better. Many web based businesses have that characteristic. It is important to portray a realistic and near-term exit strategy; the shorter the better. The management team matters even more. Gather an outstanding group of people who have both the technical and business wisdom to grow the business.
What does the future look like?
Well, I am afraid it is going to be more of the same, and perhaps a little worse, in 2009. But, again, don’t let that stand in your way as entrepreneurs. Put a whole lot of discipline in your business planning and execute smartly. Nothing beats a company that knows how to get to market. Be one of them.
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Buckle Up For New Valuations and Term Sheets
Bill Warner Wednesday, May 20, 2009
The market downturn has certainly put the damper on the view of risk by angels as well as VC’s. I keep reading that there is plenty of money out there, which is true, but the problem is that there is actually less money than last year. The personal wealth of angels and the portfolio value of foundations and institutions are considerably less by 30 to 40 percent. This puts a lot of pressure on their willingness to take on new investments.
Term sheet shock
As entrepreneurs go out with their investor stories, the lucky ones get to see term sheets that are unbelievable. See Ty McMahan’s article in the WSJ. The rest have to keep looking. The term sheets bring a new dose of current reality:
- Valuations that are up to 50 percent lower than this time last year; start-ups could pretty much negotiate a 2 to 3 million dollar valuation last year, but now, you can expect to see 1.5 to 2 million, sometimes less
- Dominant board positions for investors
- Significant control of money spent through strict covenants
- Tamping down of executive salaries
- Option pools carved out of founder’s shares
- No recovery of past founder expenses or deferred salaries
Entrepreneurs need to show maturity
It has always been the case that entrepreneurs have to show that they have a mature understanding of the equity market. Entrepreneurs that have unrealistic expectations and are not willing to negotiate and compromise will fail to get any money. However, today’s equity situation is a shocker for even the most mature of entrepreneurs. We are in a deep buyer’s market and prices and terms are very much in favor of the investor. If you need the money, this is the way it’s going to be for quite awhile.
Before you approach investors, get an update of your understanding of the market and be prepared to deal with this new reality.
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Number of Start-ups is Declining
Bill Warner Tuesday, May 19, 2009
According to the TechCrunch database, the number of start-ups in the first quarter is down considerably. Keep in mind that this is only a subset of all US start-ups. With unemployment increasing, there is an increasing number of companies overall that are starting in the US. Most of them are not seeking private equity financing.
Venture capital financing is down
This certainly tracks with the reduction of angel and venture capital investments for the first quarter. Although, the reduction in venture financing was felt less for companies needing B or subsequent rounds of financing. This too is proof that venture firms are focusing on their current portfolios by protecting those companies that have the best chances of success.
Other indicators
Their data also shows that start-ups are starting with fewer people and with less money. This can be attributed to belt tightening as well as the increasing number of web based companies that need far less money to get started. M&A is way down for the quarter, with none of the major companies announcing an acquisition.
All of this is perfectly predictable, but the reality is here. Nevertheless, if you are planning on starting a business, go for it smartly.
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Twitter For Marketing Reach
Bill Warner Monday, May 18, 2009
Twitter has taken mass marketing to a new level. Like I hear from many people I meet, Twitter is being viewed as a toy for people to share what they are doing right now and other assorted nonsense. “I don’t want to know that much information about people.” “Who cares that they are mowing their lawn?” “Why do I need to know when someone is going to a soccer practice?”
Twitter is more than you think
Think again. Twitter is a tool, if utilized intelligently, can produce a huge contact network of people that is actually interested in hearing from you. After all, they had to actively decide to “follow” you. The mass marketing advantage of this is that you can create a following of thousands and thousands of people. At the usual marketing hit rates of mass mailing of 1% or less, you can reach a lot of people nearly instantly and for no money. It is far better than buying an email list.
Creating followers
I am no expert at this, but in a matter of days, I was able to create over 500 followers. At this rate, I will have 10’s of thousands in a matter of weeks. I did this by simply intelligently following the people that are followed by people I know and have followed. Interesting enough, most of them decided to follow me too. Then I started to selectively send my blog notices to all those who followed me, giving them something meaningful to read. I also responded to tweets from people I was following, giving them recognition and giving me more reach that produced even more people who decided to follow me. This continues every day as more and more people decide to follow me as I feed them more content.
Yes, you have to weed out some undesirable people you are following, but followers start to respond to your tweets. Dialogs get started that all followers are watching and sometimes also participate. This whole process explodes into more and more followers as you get more and more involved.
The power of the masses
Once you have created a large enough network of followers, say 10,000 or more, you can start to exploit its marketing power by reaching out to your followers with products and services that might be of interest to them. At traditional hit rates, a network of 10,000 followers might produce 100 leads. At 100,000, that would be a 1,000 leads produced by a very inexpensive mass marketing program. Networks of this size and more are prevalent on Twitter. I started to get interest from some people even at the low level I have achieved so far.
Twitter now
It is not a lot of work to get started, but you have to grow your reach by actively following people. You do have to have some good content that would be of interest to maintain their interest. I have a tremendous amount of blog content that is serving as a basis for feeding the Twitter network. Give it a try. You do meet some interesting people and have some fun while doing it.
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Why Sell Your Business?
Bill Warner Thursday, May 14, 2009
This is a real bad time to sell your business. Valuations are falling as you can read about in Mike Handelsman’s article in Entrepreneur.com and the gruesome details at www.bizbuysell.com.
The Sales Decision Dilemma
This might not be intuitive at all. There’s a good chance your revenue growth has declined in the last couple of quarters. Your profits might be a lot smaller as a result. Your credit may be declining as banks reassess their risk. We are reading all this bad news every day. The dilemma is in deciding if you should sell now before the economy worsens, or ride it out and get a much better valuation when the economy recovers.
Should You Sell Your Business?
It seems to me that if your business has been strong then you have a good chance of pulling through this mess. Continue to manage your business with heightened discipline and come out of the economic decline even stronger. You then can sell your business at the much higher valuation it deserves. You have worked too hard to sell your business at bargain basement prices.
If your business has been weak, then it will not be an attractive purchase opportunity for any buyer. If your business is weak because there is no viable market for your products and services then you do not have a company worth buying by anyone. If your market is attractive but you are not managing your business well, you need to fix the business before you sell it. Your mismanagement will reveal itself in due diligence and you will get an even lower valuation as a result. This is because the buyer is taking much greater risk and is going to have to fix the business after the purchase. You should fix it yourself.
A Reason To Sell Your Business
The only reason to sell your business now is for personal reasons. You may just want out of the business at any price because you have lost the passion for it. You may have a dire personal situation that prevents you from paying attention to the business. You don’t have the energy or know-how to save your business from eminent failure and want to get anything you can for it.
But, if you still have the passion and the energy, keep going and weather this storm. Be one of those people that get going with the going gets tough.
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Give Your Business a Stress Test
Bill Warner Tuesday, May 12, 2009
Hey, here’s an idea. If banks can undergo a stress test, you might want to consider doing the same thing for your business. This might be worth your time if you do it with the objective of determining if you can withstand the worst of economic situations.
Determine the stress on your business
Start by making some reasonably pessimistic assumptions about your industry and market segment. Don’t be ridiculous, but make assumptions that represent the worst case you can realistically imagine. For example:
- Assume your market segment growth is flat or even down year to year; whatever is indicated by the changing trends in your industry.
- Make assumptions about the cost of goods and services, all of which will have an effect on your gross profit.
- Project what might happen to prices, especially if you see new competitors emerging or the possibilities of price reductions by your current competitors.
- Assess what will be changing about your customer’s purchasing behavior. Will the sales cycle be longer? Will the need for your products and services survive budget cuts?
- Take account of what is happening in the legislative and regulatory world. Will changes in government subsidies affect your business or your customer’s business? Will tax increases affect you or your customers.
Calculate the changes in your financial outlook
Any of these stress factors will have an effect on your ability to do business and need to be reflected in your financial forecast. Express these stress factors quantitatively so that you can reflect them as changes in your Excel spreadsheet assumptions that drive your financial forecast:
- How will marketing productivity be effected?
- What will happen to sales productivity and closure rates?
- What changes will have to be reflected in your cost of marketing and sales?
- Will there be changes in your assumptions for operating expenses?
- What changes should be made to prices over the next couple of years?
Perform what-if analysis
With your new assumptions, update your financial forecast spreadsheet and let Excel determine what will happen to your financials over the next 18-24 months.
- Will your gross profit still be viable?
- Does your expense structure still work?
- Are you profitable?
- Do you maintain a positive cash position?
Determine required actions
With your completed stress test, make some judgments as to what you need to do to assure your survival if your pessimistic assumptions become reality. You may find that you need to make certain changes now or at least determine contingency plans that could be executed if the situation requires them.
- Should you raise money to pull you through the tough times?
- Are their cost and expense actions you should be taking right now, just to strengthen your financial position?
- Will you be able to realistically cut costs and expenses further if times get tougher? Create a plan for such actions.
- Should you take preemptive action on prices now?
- Do you need to reduce staffing now?
Be totally objective
We are talking about your business, so be bluntly honest about your market situation. This is not a time for unfounded optimism. Be optimistic about your chances of survival, but be realistic about what challenges you face. If you are, you will come up with actions that will save your business. By taking action now, before a disaster hits you, you are giving yourself the maximum chance of winning.
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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.
