We can expect food prices to continue to rise sharply over the next decade. Why? Developing countries are seeing growth in urbanization and affluence and of course population growth. With that comes changing diets and, you’ve got it, greater consumption of Western foods. Also driving up food prices is the high cost of oil (think transport and fertilizers) and demand from biofuel producers.
As for oil, speculators are buying oil at today’s prices in antipation of continued price rises so they can sell it back to the market for profit in the future. This is a significant driver of today’s oil price rises. Also, despite nearly a 60% increase in oil prices, exports have fallen. This is partly due to the increasing domestic needs seen in oil producing regions (just look at the growth in places like Dubai and Russia - they need more of the black gold for their own domestic economies).
Demand for oil in China and India is also going to continue to grow.
In the OECD, we benefit from low priced goods from the developing nations but their rapid development will continue to place demand pressures on food and oil. Hopefully that will spur increased production and supply to keep price rises somewhat in check.
To read more, go to:
http://www.oecd.org/home/0,2987,en_2649_201185_1_1_1_1_1,00.html
http://online.wsj.com/article/SB121200725158327151.html
Cheers
Tom
Friday, June 6, 2008
Getting Started in business - buy vs build
Both can be very challenging.
1. Know what you aim to achieve in the business (are you trying to change the world, are you out for lifestyle or determined to build a fast growth business, do you need total control or would you be interested in an MBO where you and a few other managers own a smaller but potentially very valuable stake, do you want to own it for life or exit in 5 years, etc.)
2. Know your personal objectives and make sure they fit with your business objectives (for example, its hard to run for council or other political office if you want to buy or build a fast growth business)
This is not exhaustive but they are extremely important in forming your decision.
Buying is probably going to cost you more upfront and there are risks such as losing key customers.
Another key risk is the potential loss of key staff. Is your style going to be the same as the prior owner? If not, customers and staff may walk.
If you buy another company, you need to be careful to get appropriate representations and warranties about the business (and that they vendor can actually pay the damages if you sue for them - if they can’t, reps and warranties insurance is possible.
You will want to buy the business and its assets so you don’t get stuck with any legacy liabilities of the company (tax issues, legal, PI claims, etc.)
In summary, buying a business means careful due diligence upfront and careful planning to retain clients and staff and so forth after the acquisition.
Today, with private equity, its possible to buy very large businesses with the support of private equity sponsors.
If you are doing it alone on a smaller scale, make sure you don’t over pay, try to pay in instalments with some based on subsequent post-acquisition performance of the biz.
Building has its own set of difficulties. You are starting from scratch. No customers, no products/services.
It also takes funding but that is somewhat spreadout over time. Of course it can be awhile until the first signs of revenue.
Cash flow forecasting will be key, as well a careful analysis of the customers and markets. Get into their world. Read what they read, do what they do, network where they network.
My number one tip for starting from scratch is “customer first, then product/service” - find the pain/need, then solve/fill it, fast!
Cheers
Tom
1. Know what you aim to achieve in the business (are you trying to change the world, are you out for lifestyle or determined to build a fast growth business, do you need total control or would you be interested in an MBO where you and a few other managers own a smaller but potentially very valuable stake, do you want to own it for life or exit in 5 years, etc.)
2. Know your personal objectives and make sure they fit with your business objectives (for example, its hard to run for council or other political office if you want to buy or build a fast growth business)
This is not exhaustive but they are extremely important in forming your decision.
Buying is probably going to cost you more upfront and there are risks such as losing key customers.
Another key risk is the potential loss of key staff. Is your style going to be the same as the prior owner? If not, customers and staff may walk.
If you buy another company, you need to be careful to get appropriate representations and warranties about the business (and that they vendor can actually pay the damages if you sue for them - if they can’t, reps and warranties insurance is possible.
You will want to buy the business and its assets so you don’t get stuck with any legacy liabilities of the company (tax issues, legal, PI claims, etc.)
In summary, buying a business means careful due diligence upfront and careful planning to retain clients and staff and so forth after the acquisition.
Today, with private equity, its possible to buy very large businesses with the support of private equity sponsors.
If you are doing it alone on a smaller scale, make sure you don’t over pay, try to pay in instalments with some based on subsequent post-acquisition performance of the biz.
Building has its own set of difficulties. You are starting from scratch. No customers, no products/services.
It also takes funding but that is somewhat spreadout over time. Of course it can be awhile until the first signs of revenue.
Cash flow forecasting will be key, as well a careful analysis of the customers and markets. Get into their world. Read what they read, do what they do, network where they network.
My number one tip for starting from scratch is “customer first, then product/service” - find the pain/need, then solve/fill it, fast!
Cheers
Tom
Sunday, June 1, 2008
Can I raise VC at the Idea Stage of my Business?
The idea stage is quite early for most VC firms. Angels may be your best bet but talking to VC's early will build a relationship that may be handy sooner or later.
I recommend you go on the various VC's websites, find out who they are invested in and contact the founder or someone else in the company. See how they have found the experience, what their VC wanted and see if they can put in you direct contact with their backer. Just make sure the company is not a competitor to your idea!
Next best bet are to find who the lawyers and accountants and other advisors are for the VC backed company (or the VC firm if you can find this out. Make contact with them and ask similar questions and favours.
You should read Enterprise and Venture Capital by Chris Golis (4th Edition). It will help you with guidance on all aspects of building a growth company. The 4th Edition is Australia focused but the general principles apply world wide. I am currently co-authoring the 5th Edition, which will be a little more international.
Make sure you spend time with people who have done it before, even if you have to spend a little money, to learn how they did it.
Make sure you have plenty of your own capital in the business because without personal financial commitment, its unlikely any one else will trust you with their money. Cheers Tom
Links:
http://www.tomthemoneyman.wordpress.com
http://www.t3capital.com.au
I recommend you go on the various VC's websites, find out who they are invested in and contact the founder or someone else in the company. See how they have found the experience, what their VC wanted and see if they can put in you direct contact with their backer. Just make sure the company is not a competitor to your idea!
Next best bet are to find who the lawyers and accountants and other advisors are for the VC backed company (or the VC firm if you can find this out. Make contact with them and ask similar questions and favours.
You should read Enterprise and Venture Capital by Chris Golis (4th Edition). It will help you with guidance on all aspects of building a growth company. The 4th Edition is Australia focused but the general principles apply world wide. I am currently co-authoring the 5th Edition, which will be a little more international.
Make sure you spend time with people who have done it before, even if you have to spend a little money, to learn how they did it.
Make sure you have plenty of your own capital in the business because without personal financial commitment, its unlikely any one else will trust you with their money. Cheers Tom
Links:
http://www.tomthemoneyman.wordpress.com
http://www.t3capital.com.au
Sunday, May 25, 2008
Forecasting Sales & Revenues
I strongly recommend building your revenue projections from the bottom up.
By this I mean estimating unit volumes and unit price to arrive at total sales by product/service line.
Forecasting at this grass roots level will enable you to perform rapid sanity checks on your assumptions against the market as a whole and against competitors.
Forecasting in this way also enables you to compute more accurately the resources and people required to deliver those sales so that you can make cost assumptions (operating expenses, capital expenditures, working capital needs, etc.).
If you are analyzing an investment opportunity, you should take the same approach. Analyze the company's projected units, unit prices and total sales and the trends relative to the history of the company and the market.
Cheers
Tom
By this I mean estimating unit volumes and unit price to arrive at total sales by product/service line.
Forecasting at this grass roots level will enable you to perform rapid sanity checks on your assumptions against the market as a whole and against competitors.
Forecasting in this way also enables you to compute more accurately the resources and people required to deliver those sales so that you can make cost assumptions (operating expenses, capital expenditures, working capital needs, etc.).
If you are analyzing an investment opportunity, you should take the same approach. Analyze the company's projected units, unit prices and total sales and the trends relative to the history of the company and the market.
Cheers
Tom
Saturday, May 17, 2008
Sustaining Competitive Advantage
A few key tips to build and sustain competitive advantage:
- Move early
- Build unique, protected IP
- Differentiate and support it with continual innovation
- Capture market share quickly
- Keep your costs low - the low cost producer can survive in down markets
- Invest in R&D to stay ahead of the curve
- Stay very close to your customers and their needs!
Cheers
Tom
Thursday, May 8, 2008
Should you get an NDA from prospective investors?
You should certainly try but many investors (particularly VC’s) won’t give them. It partly limits their ability to do business and there is a major administration burden - some VC’s see thousands of business plans per year. That is a lot of NDA’s to keep track of and takes thousands of hours of time to read them, sign them, file them, track them, etc.
To access investors with millions of dollars, you will have to take some risks and that NDA or no-NDA decision will probably be an early judgement call for you.
With big name investors, your ideas are generally safe. Its in the VC’s best interests not to abuse the info they get - if a firm got a reputation for stealing ideas, they probably wouldn’t have many entrepreneurs knocking on their door.
With private individuals and lesser known investors, I’d try hard to get the NDA.
One interesting point is that while many investors won’t sign, once they are invested in the company, they will want you to have a policy of obtaining an NDA from other outside parties!!
So you could try to turn that around on them - “if you invested in our business, surely you’d want confidence that our info has not been provided to large numbers of others without any protection? So its a double standard not to sign ours now.”
Hopefully this is some useful guidance for you and gives you some material to have an intelligent discussion with investors about NDA’s when you are trying to persuade them to sign!
Cheers
Tom
To access investors with millions of dollars, you will have to take some risks and that NDA or no-NDA decision will probably be an early judgement call for you.
With big name investors, your ideas are generally safe. Its in the VC’s best interests not to abuse the info they get - if a firm got a reputation for stealing ideas, they probably wouldn’t have many entrepreneurs knocking on their door.
With private individuals and lesser known investors, I’d try hard to get the NDA.
One interesting point is that while many investors won’t sign, once they are invested in the company, they will want you to have a policy of obtaining an NDA from other outside parties!!
So you could try to turn that around on them - “if you invested in our business, surely you’d want confidence that our info has not been provided to large numbers of others without any protection? So its a double standard not to sign ours now.”
Hopefully this is some useful guidance for you and gives you some material to have an intelligent discussion with investors about NDA’s when you are trying to persuade them to sign!
Cheers
Tom
Friday, May 2, 2008
Cell Phone Wrist-Watches
Dick Tracy has come to life.
These devices have been around for a while and they are pretty cool.
They range from very expensive (Tag Heuer) designer versions costing thousands of dollars to cheaper versions out of China (AUD200 or so).
You put your cell phone chip in the watch and off you go. They come with blue tooth so you can have a wireless ear piece.
I am a ‘less is more’ person and if I can carry one less device, its definitely of interest.
Definitely worth considering, even if you just use when you are out for a walk, run, bike ride or something where you just don’t want to lug around even the smallest lightest mobile phone.
What’s your experience or view on these devices?
PS. The number of makers producing these devices now just further shows how easy things are to copy and how hard it is to sustain a competitve advantage!
These devices have been around for a while and they are pretty cool.
They range from very expensive (Tag Heuer) designer versions costing thousands of dollars to cheaper versions out of China (AUD200 or so).
You put your cell phone chip in the watch and off you go. They come with blue tooth so you can have a wireless ear piece.
I am a ‘less is more’ person and if I can carry one less device, its definitely of interest.
Definitely worth considering, even if you just use when you are out for a walk, run, bike ride or something where you just don’t want to lug around even the smallest lightest mobile phone.
What’s your experience or view on these devices?
PS. The number of makers producing these devices now just further shows how easy things are to copy and how hard it is to sustain a competitve advantage!
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