the goose

As I’ve mentioned here I spent a bleary eyed Saturday morning cooking up some business ideas with some friends a few weeks ago. Having diligently scored evaluated and ranked the ideas according to our ‘perfect business’ criteria – we have promptly turned around and started to persue a different idea altogether. In fairness – our careful score-boarding was just one tool for deciding where we should place our efforts.

I’m not sure what lead us to abandon our carefully strategised approach. The idea we are following up was the initial impetus for the meet and the enthusiasm of having something concrete and well thought out has proven to be have intoxicating mix. It reminds me a little the number one reason why Chuck Mellon reckons that people who should know better lose money while investing. Chuck doles out 8 golden rules for investing as part of the Wealth Mastery seminar. Time after time, eager seminaries scurry up to Chuck complaining of a flaw in his system. He maintains however, after a little investigation, that it soon emerges that in fact the eager beaver was overcome by excitement and had inevitably abandoned one or all of the rules.

I’m not sure if our scoring system would indicate better or worse success but I can certainly identify with the rush of excitement that carries me away from what my reasoned brain might consider prudent. A

What is an idea worth? Kicking back in the pub and swapping get rich quicky ideas is a favourite pastime of taxi-drivers and software engineers everywhere. Flexible working conditions and tales of vast dot com fortunes respectively stimulate business ideas into life. It is worth considering what an idea is really worth however. Its fun coming up with ideas – which means there is a ready supply. There are definitely more business ideas than there are businesses so why do their midwives guard them so jealously? There is a perception that if someone finds out the ’secret’ they could run off and instantly become financially independent. Of course there are famous examples of ‘ideas’ which did turn out to be worth millions. Xerox Parc, a Palo Alto based R+D facility that came up with the computer mouse gave it away to Steve Jobs while he was on a field trip there. More often than not however – ideas aren’t worth the paper on which they are written.

We are obsessed with coming up with an idea so good we wouldn’t have to actually work to make it happen. Of course- it does take work. Shed loads – to get even the simplest idea off the ground and into commercial reality. Only a tiny fraction of the population really put the work in that is required.

Luckily however -we don’t have to guess to hard as to what an idea is really worth. Licensing a patented idea is by far and away the purest valuation of what an idea is worth. Typically – license fees on a patent are in the 1% region.

I was lucky enough to see Keith Cunningham speaking in Dublin a few weeks ago. Keith is an American multi-millionaire entrepreneur who lists amongst his past businesses everything from dry-cleaning to cable television outfits. He went from being worth over a 100 million to bankruptcy in the 90’s and claims to be the inspiration for Robert Kiyosaki’s “Rich Dad”. He is the type of Texan that really could fill a ten gallon hat but is more mellow than maniacle. His current mission in life, together with his pretty young wife Sandy, is to educate would be entrepreneurs on the path to riches.

As a wanna-be rich entrepreneur myself – I was glued to every word. Although he may not be MBA professor material – he undoubtedly has a firm grip on the mind of an startupper. About half way though his presentation – he began to debunk some of the mantra’s professed by the Rich Dad crew. Keith started off his training career with Kiyosaki but its obvious there was a parting of ways at some stage. In southern tones, he started to dismantle the concept of “passive income”. In his own words he described the concept as ‘monumentally stoopid’.

I have to admit – my heart skipped a little when I heard him say this at first. I’ve been harping on about creating automated passive incomes for more than a year now and to hear someone with that kind of track record come out against the concept had me wondering. Of course- it was maybe more of a headline grabbing technique than it may first appear. Keith talks about leveraging your effort rather than creating a passive income stream. There is always work associated with money flowing into your bank account. At the very least there are accounts that need to be signed off. Of course – at the beginning there is far more than that to be done. Creating a passive income requires a massive effort. Like trying to manually push a fairground carousel into action – you need every ounce of energy to begin with. Even when the edifice is slowly making circles, you still need to keep an eye on it – pushing the odd horse as it floats by to keep the momentum up.

After spending some time tabulating the ideas generated on Saturday morning, there are a couple of interested things to learn.  Just to recap – we threw 10 ideas on a whiteboard and rated each one according to how well it fitted our ‘investment criteria’.  These criteria were a set of attributes of our ideal automated cashflows.

• The top rated idea was 27% better rated than the next in line
• We found it easiest to come up with “services we could describe in one sentance”
• We found it hardest to come up with ideas for whome we had an industry export on board
• Second hardest was discovering a need that was not being met
• On average we scored our ideas as being 57% of what a perfect business would look like

So what does all that tell us?  It tells me that finding a domain expert is key to success of any project such as this.  The strongest idea had a domain expert in place.  From that flowed a good understanding of how our other criteria could be filled.  Given that we rated on average an idea as 57% perfect – it shows that we were probably being fairly even handed in our evaluation – if a little optimistic.

I was fumbling around my appartment bedroom, swearing blindly, searching for a bleating phone alarm. In my stupor I had forgotten that I had agreed to spend the morning with some friends of mine. We had previously gotten together – chatting about life money and the day job. It wasn’t long before I was chipping in with my plan for financial independence by creating online cashflows. We had agreed to meet up and see if we could brain storm some ideas. For some time now I have been trying to put more of a system around evaluating ideas as they came along. That morning was the first time I really had a chance to apply some structure to what normally becomes a bit of a bun fight in terms of random get-rich-quick schemes being bandied around.

The morning meeting was a good idea. It meant we all had a clear head and the temptation to grease the creative juices with a pint of the black stuff wasn’t so strong. Our merry little group was made up of a group of technologists. We are or were all working in the telco sector – building large and scary cogs that whirled away deep in the bowels of your local multinational telephone company.

We were Iitching to pitch our ideas – but before we got started we decided to define out ‘investment criteria’. This was something I had picked up from the ICES Property Discovery Program. The program is an excellent introduction to what it takes to find properties that can create a cashflow. A key strategy used by the program is to first establish what your objective in terms of cashflow is. Our group decided that we were looking for opportunities that would generate €500 worth of monthly revenue each in exchange for one days work for the first 6 months. After that we would expect the work to lessen and the income to increase. The ICES program also promotes the idea – that in order to find one good property – you need to look at about a hundred deals. Roughly 10 will be worth doing a serious due diligence on. 3 of those should be worth making an offer on – and finally out of those three – you’ll manage to close on one.

In order to help evaluate that many deals – we decided to come up with criteria we could rank each idea on. We rank each idea against our investment criteria on a scale on one to three. The investment criteria we came up with were ..

1. We can describe the major benefit in one sentence.
2. The service can be subscription based
3. Low cost of sales (in terms of time)
4. The service would cost €25 monthly
5. A minimum of 100 clients
6. Low support costs (< 1 day a month)
7. Is there an existing need, not being met?
8. It is in a niche?
9. Do we have a domain expert?
10. Low prototyping cost

If we could come up with ideas that would tick all of these boxes – then we would go for it. To satisfy our financial objective – we would need a monthly €2,000.

So what were the ideas? Well – I would tell you if it were up to me – but for now we are keeping them under wraps. Its enough to say that they ranged from accountancy solutions to services for interiour designers to horse racing. A broad church. Of course – the sector or the particular application we are seeking to build is not so important. In a previous life I worked at Broadcom, a telco r+d outfit. We were coming up with ideas left right and center there – but nothing ever saw the light of (least of all its overfed, hungover employees). For now I’ll leave you to squint at the whiteboard we used. If you can make head nor tail of – its yours for free gratis.

We weren’t too invested in who came up with what idea. It was somewhat freeing to just dump all the ideas down and run through them at a high level. It became obvious pretty quickly which were the dogs and which were the racehorses. We did end up changing our criteria a little as we went along. Things that seemed important at the start weren’t so important by the end. I expect this type of tweaking will keep on as we evaluate more.

The next step is for us to total up the scores as see which one comes out along the top. We have a small business plan pitch by Guy Kawasaki. The winning ideas will be written up using this template so we can evaluate it a little more. For now we’re mulling the session – and we’re meeting up next week to pick some winners.

I meet and deal with small business owners every day.  Most have read a marketing book or two (which is about all I have) and know that they should have a ‘USP’ – unique selling point.  Periodically this subject comes up in my local BNI Chapter.

Members are asked to point out their own USP as part of their 60 second presentation.  Without fail we get responses such as ‘I do what I say I am going to do’ or ‘we provide better service’.  This always somewhat strikes me as a cop-out.  I’m not sure these really mark companies out from their competition.  A much harder question to answer – and more useful one – is “what benefit could you offer that your direct competitor could not lay claim to?”.

Try writing down your own USP  – look at it – and ask yourself whether you could imagine your direct competitor saying the same thing with a straight face.  Its hard to imagine anyone not claiming to “do what they say they would do”.  Could they claim a “better service ” also?  Probably.  In which case – its time to look hard and long at your own proposition.

Over the coming months I am going to be reviewing online businesses in Ireland and further abroad in an attempt to provide a state of the union in terms of how automated businesses are developing. There has been a steady evolution (well – maybe not so steady at times) from the mid-nineties as opportunities to ‘win online’ have ebbed closer and closer to the mainstream of business life. With broadband penetration finally reaching reasonable levels in the developed world, practical solutions to real needs are emerging on a daily basis.

The allure of running your business virtually is strong indeed. With potentially less staff, no rent and flexible working arrangements – it seems like making a buck online could be the ultimate in ‘passive income’. Its worth considering what a perfect business would look like. It might be up to each owner to come up with their own metrics, but here is my take on what Utopian businesses might look like.

1. No staff: I love being around motivated enthusiastic people. Good relationships are what make the world a better place to live in. When it comes to making money – people provide a considerable pain in the ass. The classic business owner will leverage other people’s time to improve their own cashflow. Ultimately however, looking after staff is a huge drain on your time and resources. The E-myth promotes developing business systems which are independent of the people that work in that business. Taking this to its extreme, not having any staff at all allows your business to act as a raw cash generating asset – making it attractive for prospective buyers. mytradesman.ie has succesfully managed to create an online money making process without hiring a soul.
2. Subscribers paying a little each month: Subscription payments are a powerful way to make it easy for your customers to pay for your service and ensure that you can meet your bills on a month to month basis. It evens out your cashflow, removing lumps, allowing for you to sleep easy in the knowledge of what is coming in next month. A low price point also makes your customers feel good about the outstanding value you can deliver. The premium rate mobile phone industry have mastered this technique. As the cost of acquiring each customer is high (in terms of TV advertising and press spend) a low monthly cost is levied to make a return over time. Credit card billing is also well suited to this model as are direct debits. The disadvantage with the former is that eventually cards will expire requiring customers to make a re-purchasing decision.
3. Low cost of sale: 3 our every 4 euros spent in most software companies goes on meeting, educating and selling to customers. Perhaps surprisingly, the highest of tech industries still relies on face to face and toe to toe meetings with customers to achieve big ticket sales. If an online income stream is to be successful, its primary benefit must be clear within the first two sentences of any introduction. A clear, simple, compelling benefit that facilitates a fast buying decision helps to avoid spending a fortune and allows your service to scale beyond the number of people you can get in front of. Subscribers to spinvox.com – a company offering to transcribe your voicemails to text messages online- can sign up a customer based on that simple description of the service alone. Its a single sentence which sums up the major benefit – and makes the buying the decision a snap.
4. Low Support costs: Doing the simplest thing that could possibly work to keep your customers happy will make sure your support costs remain low. If you feel that you need to add feature upon feature to bolster the case for your service, perhaps its time to revisit how compelling that services primary benefit really is. 37signals are the pioneers in providing online products that purposefully keep the promise to the customer uncomplicated and easy to fulfill. They go as far as to describe it as “underdoing your competition”.
5. Big fish, little pond: From the day your online business goes live – you have to realise that there is NO technical barrier to potential competitors. No matter how smart your web-designer is or how nerdy your technical team are hundreds of smarter cuter nerds in an offshore haven somewhere – just waiting to reverse engineer your perceived USP (unique selling point). Even if you can answer the $64,000 dollar question, you can be sure that a copycat can too. This is why you need to be the big fish in your small pond. Selecting a niche and promoting your brand in that niche will help to establish your service as THE place to go to scratch a particular itch. daft.ie is an example of a brand name so well known for being outstanding at what it does – that even if their entire site was reverse-engineered, it would make no odds as its the name that has become lodged with the target market beyond repair.

So what would make for your ideal business? Leave a reply and let me know.