Category: Business

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Business

Thought Of The Day: Cars

My Year hasn’t got off to a great start so far. I’ve had injuries from downhill mountain biking on what would normally be a more junior track for me; my shopping bag burst open as I entered the supermarket car park, sending my shopping all over the floor; sunstroke wiped out the last day of my Christmas break; and finally my car exploded, causing me to have to folk out for a new one – money that would have otherwise been spent on a holiday to Japan and a new (big) project this year.

I don’t like spending money on cars. While cars are certainly a nice item, for me cars are just a necessary money pit. During my ponderances on my unfortunate situation, I reflected on others who might find themselves in a similar situation. I think myself lucky to have money to buy a nice car, but I expect that people in my situation usually don’t have money to easily replace their car, otherwise they probably wouldn’t have been driving a car that’s so close to “replacement” in the first place (my excuse is that I’m not really a car person). This line of thinking went on to consider the effect of government green car policy and it’s affect on car prices, equity, stock and demand, which then moved towards thoughts of a certain listed car company’s future. Ultimately, in line with my recent penchant for predictions, I started thinking about the future of the car industry.

Tesla’s business model of not allowing anyone to work on, repair, buy/replace parts or service their cars is an interesting move. It turns the purchase of one of their cars into a subscription service. Of course car companies have sort of been doing that with the (competed) spare parts market, but tying customers in by withholding parts is a new move in the modern car industry, to my knowledge.

Trying to get recurring revenue is not uncommon in novel industries like the IT industry with hardware, software and even virtual infrastructure rental. Recurring revenue is a great way to reduce business risk, improve efficiency and ameliorate planning.

This made me wonder how else the car industry could become more like the IT industry. After all, cars have greater and greater reliance on software. Perhaps cars could be bought and then have software subscriptions to unlock features or improve performance? For example, you might buy a subscription to use the radio that comes free with a car, or subscribe to be able to use the built in GPS or bluetooth.

The graphics card industry is also interesting to me. As it’s expensive to build machines to make unique graphics cards, sometimes a factory might make only high end graphics cards, but use a hardware chip to limit some, in order to create two lines of graphics cards – a cheap one and an expensive, high performance one.

Such a model could also apply to cars. On-board computers already limit speeds to fit local safety, speed or emissions regulations; why not make powerful cars, reduce the number of factories / models and limit all cars, making high performance an option via subscription? That way people can buy a cheap car and get suckered into upgrading via subscription when they can afford it – paying more in the long run and providing an ongoing income stream for the car company, long after the sale.

I believe that more businesses will try to push customers towards subscription models in the future because of the afore mentioned benefits.

Hopefully you have enjoyed this article and it holds something useful or at least thought provoking to you, in regard to your own business.

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Business

When To Ignore Your Customers

OK, the article title is a little clickbaity; you should never ignore your customers, but certainly the customer is not always right. I find this is true under a number of scenarios, but today I’ve been thinking about Requirements Gathering.

Requirements Gathering is a term used in the IT field when referring to the process of finding out what your customer wants. It’s actually harder than it sounds because there are a number of things that influence the process. Such things include how you handle communication (you might have to hide information that is sensitive or controversial), the personality of the customer (they might be pushy and tell you things that they think you should do, rather than what they need), the capabilities of the customer, etc.

There are a number of other factors and this is a big subject, but it’s actually the last one on the above list that I’d like to talk about in this article: how the capabilities of a customer affect the Requirements Gathering process.

A customer will most likely understand their needs better than you will, however it is unlikely that they know the best way to service those needs, otherwise they wouldn’t need you, right? Given this skill vs knowledge difference, it’s often easier to learn the customers requirements than it is to have the customer tell you what they need or how you should present your service to them. Though at this point it’s worth re-emphasizing my earlier point that you should never ignore the customer. Work with them on this process and have them test and sign off at each iterative stage.

Let’s explore an example to illustrate the idea. Say you have a knowledge base system and the customer wants a report to get some specific information to do a task that’s part of their job. Certainly that’s a requirement/deliverable right there that needs to be satisfied. You could expediently satisfy that by creating a report for the user, but then they might come back next month and ask for the same report. Not a big deal, but if you have lots of customers wanting these reports, it would be better if the user can create the report themselves.

What happens if next time the user comes back and wants to report on something different? They’ll probably like how they can create their own report on the first type of data and request that you make the facility for them to pull a report on the other type of data they need. As they’re not capable of making their own knowledge base system, it makes sense that they couldn’t imagine that it could be possible for you to make a reporting system that enables them to make their own custom reports and report on anything that they want.

A better approach might have been to discuss the possibilities with them and involve them in the design process a little bit. Of course it’s in people’s nature to ask for the world, so make sure that you talk to a number of customers and scope the demand for the work to see if it’s worthwhile and confirm it’s the best approach and best bang for your buck in effort, when compared to other work you could be doing.

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Business Investing

Interviews And Public Relations

I recently had an interview with the nice folks from Snowball Effect, which is being used as content to write three articles, the first of which came out today.

It’s a well written piece that touches on some of my comments on the difference between investing in listed stock vs private equity, psychology around investing and some other factors of investing.

Learnings For Businesses Doing PR

While the interview was very friendly and both the interviewers and I both had the same goal (to produce helpful information about investing), it was very interesting from my perspective because it was an insight into what it might be like to publicly represent an entity.

This got me thinking about some of the issues businesses might have with public communications. While I have a bit of experience with this subject, I have never been responsible for non written communication (except in a few trade shows and the like). So today I thought I’d write a little about my thoughts on the challenges of PR and being quoted.

Generally speaking the main forms of PR representation that give rise to quotes are written communications, interviews and public speaking (speeches, presentations, etc.). These are very different forms of communication because they each have different levels of interaction (which leads to distractions), control and skill required.

Written Communication

Written communication is by far the easiest of the three because you can fully prepare, take your time and there are no distractions. This means that you have absolute control over what you put out to the public, you can analyze what you wrote before publishing it, which means you can look for ways that people could misinterpret or corrupt the meaning in your words, and generally stop yourself from presenting poorly.

Public Speaking

Public speaking is a little harder than written communication because you have social pressure; people might react to what you say (you might get clapping, booing or heckling). People’s reaction or the possibility of reaction might affect how well you communicate, though you can practice for this with groups like Toast Masters.

Nevertheless, with public speaking you are still in control and you can prepare in the same way as you can with written communication. There is just greater scope for errors. That said, it does have the benefit of being able to show some personality and charm, which is more difficult than with written communication. Also people can see your face, which means that peoples reaction will be different to written comms (think about how differently people treat others in a car vs as a pedestrian).This aspect may make it a more appropriate way to communicate certain types of information – such as apologies or things that require ‘spin’.

Interviews

Interviews are easily the most difficult form of communication. You can walk in prepared, but get misdirected by the interviewer and end up talking about something completely different. You can have thoughts that distract and misdirect you even mid-sentence. Such thoughts could be about the subject matter or social matters (for example, you may be thinking “What does that look on the interviewers face mean?” or “Are they trapping me with this question?”).

There are also issues that as your speech is free, you may not communicate your point well. This gives rise to being quoted in a way that makes you look dumb or doesn’t present your whole opinion. For example, your rhetoric could reference something you previously said, which when quoted makes no sense without the former words.

My takeaway is that when talking in interviews, you should always ensure that you make your point clearly and ensure that whatever the distraction, always finish what you were going to say before discussing the next item.

My Snowball Interview

Fortunately for me the folks at Snowball Effect had no such mal-intentions, but given that I’m not a skilled interviewee, I wanted to take this opportunity to expand on some of the ideas touched on in the article.

“Prior to that, I’d been swimming around in the pool of sharks that is the NZX and ASX, which was great. But SuiteFiles was interesting. As a private equity investor, you’re not quite in the business, but you have to be business-minded. Whereas when you’re investing in listed stocks, you don’t have to be as much.”

Lewis Hurst

This first comment about the pool of sharks was a little jest about trading public listed stocks. It’s actually not too bad, but there are some shady companies out there (I won’t talk about specifics) and it does feel like there’s a bit of stock market manipulation going on sometimes, though that doesn’t bother this investor. I find that NZX listed companies tend to be more honest than those listed on the ASX in terms of the reliability of forecasts, though this is entirely just my opinion and I don’t have anything to back this up. I also believe that there is some insider trading that happens with many of these companies.

I found investing in SuiteFiles interesting because it is a closer nit community of investors and directors, though I would say that this definitely isn’t as much the case with my smaller private equity investments.

My comment about being business-minded with private equity is such a small quote with a lot behind it. When you are involved in a company (especially a closely held company) as an private equity investor, you have to also think like a businessman. This means that you have to be watching out for tricks and be prepared.

A good example of this is when I was looking at investing in a tiny home complex a few year ago. The offer was presented as a business with the security of each investor owning their own part of the complex which was managed by the business. In fact the owners intention was to structure it in such a way that the business would allow her to unfairly allocate revenue through homes she owned before homes owned by other investors.

Interestingly in business actions can be seen as fair or unfair at the same time. It’s necessary to be business-minded to think about what is right and what action to take. An example of this is an entrepreneur that wants to take a large salary from a company you are invested in. This might be fair because a person doing that job might be worth that much, equally it might be unreasonable because the entrepreneur is already motivated by their large stake in the company, so it’s unfair to compare their package to someone who needs a larger salary to remunerate the position.

As a private equity shareholder, like a businessman you will have to consider legal implications of your position. This means that you will have to understand the intentions behind sections in shareholder agreements and company constitutions. Like a businessman you may on occasion have to strongarm people or even take people to court. Fortunately I’ve never had to do the latter.

“With private equity investments, you have to do a bit more research as there’s less published information available. Snowball Effect is great at putting together offers and making that information available. With the NZX there’s a lot more information out there, newspapers digging out information on an investment opportunity and industry commentary – which you don’t necessarily get with private equity investments.”

Lewis Hurst

I think most of the above quote is pretty self explanatory, though it’s worth noting that although Snowball Effect does a good job of putting together offerings, you still need to do your own research because even for retail offers there’s a lot missing.

“Not just for a diversity spread, but also as part of a risk and reward spread. Don’t be put off with private equity, but if you’re nervous, start small.”

Lewis Hurst

Again, I think that’s pretty self explanatory. I’ve talked before about building a strategy, and I believe that private equity can fit into this for many people, especially younger people or people who have already reached their financial goals and are both capable of enjoying the benefits more risk.

“Use your gut to protect you against the negatives, rather than persuade you of the positives. You can convince yourself that something is a good investment and then not put in the leg work that you need to with private equity investments.”

Lewis Hurst

It’s really important to keep your emotions out of investing when decision making. Your gut can tell you something is good, but you need to put the legwork in to prove that it’s a good investment and find all the potential traps and things to be careful of. However if your gut tells you it’s bad, just don’t bother investing. You can do more research, but you might end up convincing yourself to believe the BS your gut is warning you about. It’s possible to be too open minded, sometimes.

“Investing can be complicated. There are so many things to learn, so many mistakes to make and so many ways of viewing things as well. What worries me about new investors is a lot of them haven’t thought about it much. Everyone’s been there. You start off in the stock market and the amount of research you do is looking at the line on the graph and considering whether you like the products being sold by the company or not. You feel pretty confident with yourself and throw some coins at it.”

Lewis Hurst

I suspect that this quote might seem derogatory to some, but it’s really important to realize that there is a lot of work in investing. If you’re doing less than half a day’s work of research, you’ve probably not done enough research.

I see a lot of big ego’s with new investors who think they’re an expert because they bought some stocks that went up, but when they talk about investing it’s clear that they know next to nothing.

I think we can all suffer from egos (especially us men), and ego is the enemy of intelligence. Consider how little scientists of the past knew, but were so certain that they knew everything (leaches could be used to remove demons from the sick, the Earth was flat, etc.). It was only when we accepted that we didn’t know things that we were forced to research and ended up learning things. It’s very easy to stop learning at that point because your ego tells you how great you are, but recognizing that we can never know everything is the only way to keep learning and improving.

Personally, I need to improve my knowledge and experience in matters legal, accounting and business, and everyone can always benefit from working on our people skills.

“Don’t follow some formula that you’ve read about in an investing book. You need to relate the opportunity back to how you’re going to get money out of it and how much return you need that investment to make to fit with your financial goals.”

Lewis Hurst

Reading this again, it comes across as though I meant to say that you shouldn’t invest based on whether the investment opportunity fits the values in a textbook, but instead whether it fits in with your strategy. That’s good advice, but not what I meant.

Additionally, I probably should have said “Don’t just follow some formula”, because books are great.

This quote was actually a reference to performing a valuation that matches your goals rather than how an accountant might perform a valuation. For example, you can apply a risk premium that’s relevant to the risk levels acceptable with your strategy, rather than what’s relevant to the business. This is a complicated subject, so I might circle back to this in a future article.

Lewis believes that Snowball Effect has simplified the process for investors and importantly, saved them time. “When Snowball Effect presents retail offers, they’re presented in a very easy to understand way.”

Snowball Effect & Lewis Hurst

There’s actually a lot in this sentence that was discussed in the interview, but didn’t make it to the page.

It’s a massive amount of work between getting an offer from a company to making that offer investable, and Snowball Effect tidy up the offer so you don’t have to deal with any of the mess.

Based on past experiences investing without Snowball Effect, I have found that accounts aren’t correctly presented, forecasts don’t match reality (this includes incorrect numbers and unrealistic expectations), there are legal documents to create and agree which take a long time and costs thousands, etc. There’s months of time goes by to prepare all that and I notice that I don’t have any such issues when investing in offers presented by Snowball Effect. This also increases the quality of the offerings because I don’t have to deal with time wasters with madcap ideas about valuations, etc.

The downside to this however, is that I don’t get to see the abilities of the entrepreneur. For example, I don’t get to find out if they’re bad with their finances, projections or strategy, because it’s all presented nicely to me. I don’t get to find out if they have good negotiation skills or if they are a difficult person to deal with, either.

Finally it’s worth saying that because Snowball Effect handle all this stuff, they’ve enabled an entire market of investors and businesses that wouldn’t otherwise be able to invest or get funding through smaller investors. This is because for all the work it takes to get an offer ready and do the research, and the cost of the legals (thousands of dollars) it wouldn’t be worthwhile for each investor who is spending less than six figures on the investment. Snowball Effect has effectively made it possible to invest four figure sums in private companies, which otherwise wouldn’t be feasible. That’s pretty cool!

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Business

How To Respond To New Competitors

It is inevitable that at some point, you will have to deal with a new competitor trying to enter the market or disrupt the industry. How you deal with this is imperative to the survival of your business.

When responding to new competitors, I highly recommend avoiding the knee-jerk reaction of trying to compete on price, if possible.

Lewis Hurst

New competitors will invariably try to poach customers by offering their products at a lower price. This is because they have to have some reason for people to look at their products when customers are already perfectly happy with the incumbent product. Even if the new product is better, people often aren’t interested if what they have already works for them.

Inevitably some customers will be lured by lower prices, try the products and move to the new competitor. The natural response to this is to reduce your prices to remove the incentive for customers to try the competing product.

The problem with this is that you have a business to run. You have costs to cover and profit to make, the new competitor does not. If their business fails, they have lost only their time. Also the lure of a new business venture will be enough that they are probably happy to give all their free time to make it work (probably while they support their living costs with a job elsewhere) – so they have no value on their time. They may also have some upfront cost of investment that they are using as justification to make the business work at any amount of effort, and they won’t have ongoing costs such as staff to consider. All of which justifies the new competitors business decisions, despite those decisions making no sense in the business world.

Consequently if you compete against them on price, you will drive the price down and down until it’s unprofitable for you to run the business, and your competitor will succeed because their mindset will be to make the business successful whatever the cost (and they’ll be measuring success by customer uptake, rather than profit). The result will be that the industry is not worth the effort to compete in. This is bad because it stifles innovation, quality, functionality and other things that consumers benefit from.

A better way to respond to new competitors is to compete on things other than price, such as quality, functionality and service. Obviously this depends on what you’re selling – if you sell nut’s and bolts, and someone else sells nut’s and bolts cheaper, you’re probably going to be competing on price (assuming you can’t create barriers to entry, such as contractual agreements with suppliers).

Competing on quality, functionality and service is good because you can keep the profit margins required to make a successful business, while providing things a customer wants. Because you’re providing things a customer wants, you may even be able to charge more, and thrive despite the increased competition.

If for example, you sell accounting software and a new competitor comes along with a rival product, instead of competing on price, add new features that the customers want. A customer would rather pay more for a product that does what they want and makes their life easier, than pay less for a product that doesn’t quite do everything they want.

In reality, you will probably lose some low value customers to the discounted product, but this is acceptable loss compared to the alternative of competing on price.

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Business Investing

Business Performance

Thinking about buying a business and looking for some industry stats or wondering how your business is performing compared to others? Stats NZ have launched a great new service called the Business Performance Benchmark, which lets you look at various financial aspects of average businesses in given industries.

It’s a very cool tool (which may be construed as being on the verge of disclosing industry secrets), which you can access here:

https://statisticsnz.shinyapps.io/bpbench/

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Business

Thought Of The Day: Netflix

Netflix have an interesting business model. From the outset, you might think that their business is all about having the best shows to get all the customers, but they’ve found a more profitable way. They make shows, run them for a bit to prove their success, make money on them, then sell them to other providers.

This seems counter-intuitive at first, because why sell the golden goose and give a competitor a chance? Well, the answer to that lies in the sale price. If they can sell the shows for (say) 10 times the annual revenue the show would generate, then they can use that money to make more shows and end up with more money than they otherwise would have earned from just running the show themselves. This way both the competitor (who invests free cash into an asset that returns 10% ROCE) and Netflix who end up earning more money.

This model is not dissimilar from business owners selling their business. If you’ve built up a successful business, you should probably consider selling it and trying something new. Alternatively, perhaps you can sell part of your business (or shares in your business) like Netflix are doing by selling their shows and listing on the stock exchange, so you can use funds to invest in growth and make your business more successful.

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Business

Market Research

Market research is important when launching new products and as part of the pre-sales process to ensure that:

  • You are able to target your advertising
  • Markets you are targeting like your products
  • Markets are big enough to be worthwhile

When doing market research you should be open minded because you may in fact discover that there are more markets than you realised.

Clearly from the above, you will see that market research is about more than just interviewing potential customers. To do market research you should interview customers, explore existing products including any value-add things being provided, try to discover the barriers to entry, etc.

The Pitfalls In Market Research

Market research is hard. Data is unavailable and any data you collect is likely to be unreliable. Be mindful of this and try to guide people to give you the information you want without influencing their answers. For example, try loading questions to encourage an answer in one direction, then loading them the other way for a different person. This might give a clue if people have a strong opinion about the subject or if they’re just making noise from their face holes.

Be aware that people will often give their opinion about what your business should do without having any idea about the business or industry. For example, they might make a suggestion of a new feature or product that they might like but no one else would, or they might make a suggestion for something that they think others would like but actually is unimportant. This is more common that not.

Watch out for cultural differences when exploring markets afar. For example, in some countries it may be considered rude to give negative feedback, so any neutral or overly verbose response should be considered extremely negative.

Finally, people generally talk rubbish when quizzed for feedback on products and services. For example, if you ask people what they would pay for a widget, they might answer with a number that they think others would pay, what they could afford to pay but never would, or a number they think you might like to hear. A better way to work out what they might pay for a widget is try to sell them a widget.

To conclude, market research is very important and is an activity that goes beyond simply gathering information from potential or existing customers with questionnaires. Be innovative in the way you collect data and be aware that most of what people say is rubbish. Try to find ways to measure peoples actions and reactions where possible.

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Business

Finding An Investor

Whether you’re trying to find an Angel Investor or applying for a business loan, the first thing to do when raising capital is to work out how much money you need. I realise that sounds obvious, but it’s not as simple as you might first think.

To work out how much capital you need to raise, you’ll need to do a business plan to work out where you want the business to go and to justify the strategy.

You’ll then need to do some financial modeling to work out the strategy to get there. Initially this will be a basic cash flow projection, but you’ll need to model several scenarios with different levels of funding at each stage. You should also model how different types of funding will effect your strategy.

For example, if you run a farm and want to raise money to grow the business, you might initially think you just need money for a tractor. You might later want money for more land, working capital to hire people and more machinery.

After outlining the end goal in a business plan, forecasting growth (including costs, risk mitigation costs, market analysis, SWOT analysis, etc.), you’ll need to work out a plan for the money.

You’ll need to do financial modeling to show how cashflow is effected if you borrow in stages vs all at once, and various other strategies in between. It might be that raising more money up front means that you can be more profitable and cover costs more easily and reach your goals faster. It might be that smaller tranches work better for you.

You’ll need to model different strategies with different types of funding. If you get a loan, can you cover the costs? Can you get a big enough loan to reach your goals? If you get an Angel Investor, will the freedom of having no debt mean that the business grows faster? If so, will your 80% shareholding in the larger company be greater than your 100% shareholding in the smaller company? Can you model a strategy that enables you to increase the value of your shareholding after X years? What does the model look like if you mix loans and investors? Can a smaller round of fund raising get you the money you need to grow the value of the business so that you don’t have to sell such a large part of the business to get the rest of the funds you need?

Once you’ve modelled this, you could optionally get any business valuation you used in your modeling checked by a professional (this can be done later, but may save time doing it now to avoid reiteration of the financial modeling stage). The valuation can be checked by:

  • An accountant with valuation experience (less preferable because they don’t have access to market data so valuations tend to be out of line with reality a bit).
  • A business valuer.
  • A business broker (be aware that many brokers dont have the skill to do this for business where only shares are being sold instead of the whole business). I recommend Snowball Effect if you want a 3rd party opinion.
  • The discovery process when pitching to investors.

Once you’ve worked out your strategy and how much capital you need to raise, you need to seek a loan (which could be via an institution or private individual) or an investor. If you’re going with an institution, you can stop reading at this point because the institution will have their own process they will guide you through.

However, if you are looking for an investor, you’ll need a Pitch Deck or Information Memorandum (IM). This is basically just a document that presents your pitch to the investor. Accompanying the pitch will be a number of documents, such as the business plan you made earlier, and some basic financial information.

Once an investor is engaged, you should research them to make sure they’re a good fit for you. Are they a silent investor or do they want a position on the board, or something in between? Do they have skills, experience or contacts that will help? Do they have a conflict of interest / are they a competitor? Are they happy with the exit plan?

Once you’re happy the investor is someone you want to work with, you’ll have to disclose more information about the business. You may wish to ask the investor to sign a Non Disclosure Agreement (NDA) before proceeding. At this point an investor will want to see financial information, evidence of things disclosed in the IM, financial modeling, etc.

If both parties are happy to proceed, you’ll want to start negotiating terms and you’ll need some legal documents. Specifically you’ll need a Company Constitution and a Shareholder Agreement.

You’ll want to have a commercial lawyer create this. Getting a good lawyer is very important. All lawyers say that they do commercial law, but the fact is most are only good at family law. It’s very important that you get a lawyer that specializes in commercial law – which usually means hiring a big law firm. This is expensive, but will save you money in the long run because there will be fewer rewrites.

I hope this brief outline helps start your journey to success. Please feel free to ask questions or share your experiences & learnings below in the comments. Also, don’t forget that I am an Angel Investor, myself, so please contact me in the comments below if you are looking to raise capital (I won’t publish comments aimed at contacting me, so your message will stay private).

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Business Investing

Why Do Private Companies Sell For Less Than Listed Companies?

As an Angel Investor one of the most common hurdles I see private companies struggling with when trying to raise capital is valuing their business. Specifically, company owners tend to have a disconnect between what they think the company is worth verses what investors are willing to pay.

Too many times I see the valuation set at what the value of the company will be after growth, which leaves no profit in the future for any investor with the risk of losses if the company doesn’t succeed.

I also see valuations being set based on what the owner feels like it’s worth, with no financial justification.

I also see valuations from accountants which are typically based on a DCF methodology. While a DCF is a valid way to calculate a business’s worth, it’s more used to calculate the value in a business rather than the market value, or what somebody would actually pay for a company. This is because it doesn’t leave any room for profit for the investor in the short / medium term, and the discounted rate doesn’t reflect the opportunity cost from an investor’s perspective. An accountant would typically not be in a position to negotiate the level of risk and will typically accept the level of risk given to them by the company owner, giving a more minor discount value.

Finally this brings me to the last type of valuation I see, which is a comparables market valuation. As company owners typically don’t have access to sale data of private companies, they often compare their business to those listed on the stock market. Which brings me to the subject of the article…

Why Do Private Companies Sell For Less Than Publicly Listed Companies?

It seems fair that similar companies should be priced similarly, right? Yet you’ll never get the same price for your company selling it privately than you would selling it publically. The answer to the titular question lies not just in the benefit of liquidity of listing a company, but also in the public nature of listed companies.

When buying a private company, there is a much larger risk premium to overcome due to the fact that there is less data available about the company, that data has not been held to the same public rigor (or sometimes laws) that a public company has. There are also years of documented performance forecasts that can be contrasted against their following year’s results to determine their accuracy, and of course a bunch of laws that must be adhered to in order to fit with the bourse’s requirements, which are perpetually scrutinized by large institutional investors with a copacetic interest to any smaller investor – safeguarding demand. All of which contributes to a lower risk premium for public companies.

There are also aspects of demand that push up the share price of public companies, as not only are such companies easier to buy into, but some institutions may have to buy those stocks to fit allocation requirements.

The benefit of liquidity is also seen in the opportunity for exit. In other words, as public companies are easy to sell, investors don’t need to worry about finding a buyer. This brings supply side pressure on the price of non-listed companies, pushing the share price down.

The nature of sale of private companies also comes with problems, in that any buyer is likely to buy the company in its entirety. This changes the calculation on how much a company is worth, because it’s no longer a silent investment that pays you regular dividends, it’s a job for someone to get their money from the company. Consequently, an investor of a public company might be happy with a 5% dividend because it’s better than the return from the bank, but an owner operator doesn’t want to buy a business, then work all day for the same amount of money they would get from putting their money in the bank.

Finally, there are additional risks and costs related to investing in private companies. For example, one might spend anything from 2 to 30 days researching the company and going through legal processes, incurring costs of thousands of dollars just to make the purchase of the shares.

All of the above make angel investing and owner-operator company purchases less attractive, which makes private companies sell for less than publicly listed companies.

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Business

Changing Your Company’s Website

Coming from an IT background and having done a lot of research on search engine ranking techniques (including building my own testing platform for SEO) and having been the sole creator of a website that garnered thousands of visitors a day, I would like to share my views on changing your company’s website.

Often when people start out in business, the website is one of the first things they get for their new company. Typically this website will be relatively simple, built from a templated design, and be an adequate front face for the company.

After a few years your business has matured and possibly developed into something that you had not anticipated or intended – and that’s a good thing, you’ve recognised that you need to do what people want and take the opportunities that come to you. Your cake shop has become more of a wholesaler; your flower shop has become an online shop and is basically a delivery business; your computer shop makes more money from IT service than selling computers and you now spend most of your time doing HR tasks; or you bottle shop has transformed into a franchise model. Your website is now irrelevant to your business and is looking tired; you’ve decided that it’s time to change your website.

Planning Your New Website

The first step in deciding how your new website should look is to build a list of functional and aesthetic requirements.

Aesthetic Requirements

I won’t go into the aesthetic requirements too much, other than to say that those should reflect the message you want to convey and your brand, and to say that they should draw the viewer to the correct parts of the page, and encourage the viewer on a subconscious level to do what you want them to do.

There are several tricks to this, such as using pages in which the layout changes so users don’t become blind to adverts (Have you seen the mobile pop up ads on some websites? You can find the button to close the pop up before you’ve even read what the ad was! This trains the brain to block out the advert), or placing important text in positions where people’s eyes tend to go to.

If you operate an online shop (without making it difficult for people to find what they’re looking for) it’s a good idea to have some sort of dynamic nature to your website so it doesn’t appear stale and people are forced to look at other products. A common approach is to have some products advertised on the front page, which shuffle around a bit with every view. Another approach might be to visually change how some products are presented. Your web designer may be able to advise you on these things.

Functional Requirements

In terms of determining the functional requirements of your website, you first need to have a think about what your website is for. Is your website a elaborate business card? Is your website a community? Is your website a shop? Is your website aiming to convince people of something? Is the aim of your website to get people’s contact details? The aim of your website should be to support your business operations or strategy.

Part of this is deciding who the website is for. Is it to convince distributors that you have a lot of fanatical customers? Is it to convince customers to come to your brick and mortar shop? Is it to convince businesses that you are bigger than you are so you can go after bigger fish? Is it to sell your brand or ethos? You need to outline the goals of your website, then think about how you might achieve those goals before you ask a web designer to build your website.

I believe that a very important part of any business is how you advertise it. I also believe that it’s very important critical to measure the successfulness of all advertising you do, which includes radio ads, gorrilla marketing, pamplets, etc. Correspondingly, your new website will need the ability to measure that success. I recommend setting up something in your new website that enables you to set up new pages (or even single page websites that instantly redirect to your website), which count the number of people landing on those pages. This can then be used to measure the effectiveness and value of specific marketing campaigns which direct customers to those pages, in turn helping you do cost-benefit analysis of different advertising methods. This will help you funnel money into the right advertising channels and know how much money to spend on advertising. This will make you more efficient, grow faster and be more survivable and competitive than others in your industry.

On the subject of measuring success, it’s wise (and also very cheap – it’s just a few lines of code) to measure the success of your old and new website before switching over. Signing up to a Google Analystics account and Google Webmasters account is a great, simple, and free way to monitor the performance of your new website vs. your old one. From here you can also see what people are searching for, and how well your website performs in those search rankings. You can then use this information to apply focus to fixing those problems, such as writing articles about particular subjects, changing the structure of your website or page, or generating external links to existing articles, etc. This data is also useful as honest market research.

Implementing Your New Website

There are a few things to think about when making your new website go-live, and the associated risks should be managed the same as they are in any project. Part of this should be considering how you manage the change over (reducing any outages, ensuring that there is support during and after go-live), maintain any existing IP in the old website, such as subscription lists, usage data, text on sucessful pages, etc.

Another important thing is to ensure that all the pages in the old website have a 301 redirect set up, so that any links on the internet to those pages, are correctly redirected to the new relevant page, if that page location has changed. This is not only important for people clicking on links to your website from other websites, but also for the credibility (and therefore ranking) of your website in search engines.

Choosing The Right Web Developer

Finally I’d like to talk about choosing the right web developer. This is a tough task, because it’s really hard to know what you’re getting, especially if you don’t have an IT background. It’s also hard because web design businesses are actually a mix of several diametrically opposed skills: A web designer must be technically savvy at IT, but also artistic, and also good at talking to people in order to get the business and articulate the requirements. On top of this, a web designer should be business savvy to be able to understand your business, so they can advise you, and be proficient at each aspect of their trade and have fringe knowledge in things such as SEO and security. Honestly, I don’t think I’ve ever met anyone in my whole life that fits all that criteria perfectly, which is why the best thing is to go for a large web design company that has a multitude of skills to get the job done. Let’s talk about the sort of web designers that are out there, that might suit your needs.

There are a lot of very cheap web designers out there who have very little skill, and simply use and modify templates to give you something unique and pretty. These cheap developers come in two forms: local and foreign.

The advantage of hiring a foreigner is that they will be very cheap. You can get a website done for about USD$200 – USD$2,000. No matter what you pay these guys, you will get exactly the same thing (and they will probably lie to try to make you think differently so they can put the cost up). You’ll get a website that is OK but not quite unique and you won’t get anything other than basic functionality or existing out-of-the-box templates, shopping carts, etc. The support will be almost non-existent after they have the money and they will be terrible to deal with as the project takes more time. They may lie about what they will give you. Usually what they do is only a few hours work, configuring an existing website system that is freely available. If you want more customisation, they often don’t have the skill and will lie about the deliverables, then argue with you. All that said, this might be fine for a small business with basic requirements.

The advantage of a local is that it will be done with more care, you’ll get better support and it might be a little more unique. You still won’t get much beyond out of the box stuff, but they will have a more honest way of working. You will pay about NZD$1,000 – NZD$2,000.

Finally, there are more skilled web developers. These folk tend not to use out of the box systems and code the website from scratch. They may use out of the box systems, but they will have the skill and knowledge to integrate their own work into it and make it do things that the cheap web developer can’t. If you can afford to spend more on your website, it’s worth doing this, but it will cost you a lot more money but you will get a completely unique website that is fully customised to your requirements. You may end up spending upwards of $10,000.

Web design is a very big subject, and often very business specific. If you would like to know more or discuss any of this, please leave a comment below.